THE  ROMANCE  OF  LIFE  INSURANCE 


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Copyright  by  Harris  &  Ewing,  Washington. 

THEODORE  ROOSEVELT. 


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'  The  business  of  life  insurance  vitally  affects  the  great 
mass  of  the  American  people." — THEODORE  ROOSEVELT. 


THE  ROMANCE  OF  LIFE 
INSURANCE 

ITS  PAST,  PRESENT  AND  FUTURE 


With  particular  reference  to  the  Epochal  Investigation 
Era  of  1905-1908. 


DEDICATED 

To  the  public  it  hopes  to  serve,  through  the  personages  of  the 
Insured  it  would  instruct,  the  Uninsured  it  would  persuade, 
the  Agent  it  would  assist,  the  Legislator  it  would  counsel 


By 

WILLIAM  J.  GRAHAM 

i 

Fellow  Actuarial  Society  of  America,  Member  American  Mathematical  Society,  Fellow  American 
Statistical  Association,  Fellow  American  Society  for  the  Advancement  of  Science, 
Member  Circolo  Matematico  di  Palermo,  Member  Societa  Italiana 
per  il  Proofs©  cWL  Scienze,  etf.*'   I 


THE  SPECTATOR  COMPANY 

CHICAGO  OFFICE:  Sole  Selling  Agents  135  WILLIAM  STREET, 

INSURANCE  EXCHANGE  NEW  YORK 


Copyright,  1909,  by 
William   J.  Graham 


TABLE  OF  CONTENTS 


CHAPTER  PAGE 

I.    LIFE  INSURANCE  —  EVERYBODY'S  PROBLEM.. 13 

II.    THE  LIFE-INSURANCE  INVESTIGATION 23 

III.  THE  AFTERMATH  OF  THE  INVESTIGATION 29 

IV.  THE  EVOLUTION  OF  THE  POLICY 44 

V.  You  —  How  LIFE  INSURANCE  CAN  SERVE  You....    61 

VI.    THE  THREE  SYSTEMS  OF  LIFE  INSURANCE 85 

VII.    SCIENCE  AND  HUMAN  LIFE 100 

VIII.    LIFE-INSURANCE  SUPERVISION  121 

IX.    LIFE-INSURANCE  LEGISLATION 137 

X.    TAXING  A  TAX 159 

XL    THE  STEWARDSHIP  OF  THREE  BILLIONS..! 183 

XII.    INSURING  THE  MASSES 204 

XIII.    THE  LIFE-INSURANCE  AMBASSADOR 233 

INDEX 257 


258740 


INDEX  OF  ILLUSTRATIONS 


PAGE 

THEODORE  ROOSEVELT Frontispiece 

CHARLES  E.  HUGHES 22 

GROVER  CLEVELAND 28 

WENDELL  PHILLIPS   46 

JOHN  WANAMAKER  64 

MILES  M.  DAWSON 84 

DR.  RICHARD  PRICE 102 

JOHN  A.  HARTIGAN 120 

WILLIAM  C.  JOHNSON 136 

RALPH  W.  BRECKENRIDGE 158 

WALL  STREET,  NEW  YORK 182 

JOHN  R.  HEGEMAN,  JOHN  F.  DRYDEN,  STEPHEN  H.  RHODES.  206 
CHARLES  JEROME  EDWARDS 232 


PUBLISHER'S  PREFACE 

IN  April,  1908,  The  World  To-Day  announced  the  publica- 
tion of  a  series  of  articles  on  "  The  Romance  of  Life 
Insurance,"  by  William  J.  Graham,  and  made  the  following 
advance  statement  of  its  purpose : 

"  We  are  appalled  at  the  havoc  unthinkingly  wrought  as 
one  result  of  life-insurance  agitation  within  the  last  three 
years.  That  popular  misunderstanding  of  the  real  signif- 
icance of  events  in  life  insurance  has  brought  about  a  halt  in 
the  business,  and  a  disintegration  of  agency  forces  organized 
at  large  expense  and  equipped  to  spread  the  sound  economics 
of  life  insurance,  is  little  short  of  a  national  calamity.  In  the 
judgment  of  this  magazine,  these  troubles  have  arisen  not 
from  publicity,  but  from  an  abuse  of  it,  that  can  only  be  cor- 
rected by  publicity  of  the  right  sort. 

"  We  can  conceive  of  no  topic  with  power  to  appeal 
more  intimately  to  the  reading  public  than  that  of  life  insur- 
ance, when  properly  handled.  Life  insurance  is  a  matter  of 
concern  to  the  individual,  to  the  family,  and  to  the  State. 
It  involves  problems  of  human  life  —  a  study  second  to  none 
in  human  interest.  Entertainingly  related,  the  colossal  pro- 
portions of  life  insurance  can  be  developed  to  command 
interest  beyond  the  possibilities  of  iron,  steel  and  other 
industries,  when  magnified  into  romances. 

"  There  is,  in  addition  to  this,  a  scientific  side  to  life 
insurance.  To  evolve  and  measure  in  money  equivalents 
probabilities  of  human  life  and  death  calls  into  play  mathe- 
matical, medical  and  legal  science. 

"  With  this  underlying  basis,  *  The  Romance  of  Life 
Insurance/  told  in  forcible  and  scintillating  style,  never  too 

9 


10  The  Romance  of  Life  Insurance. 

deep  to  become  involved,  will  command  attention,  while  the 
story  of  life  insurance,  its  upbuilding  and  its  position  as  an 
economic  necessity,  will  be  emphasized  to  the  benefit  of  the 
reader  and  the  insurance  public." 

The  articles  were  published  as  scheduled,  beginning  with 
the  issue  of  June,  1908,  and  concluding  in  the  May,  1909, 
number,  meeting  with  immediate  favor.  In  fact,  no  series 
of  articles  on  life  insurance  ever  before  attracted  such  atten- 
tion or  so  fully  covered  present-day  problems. 

Walter  S.  Nichols,  actuary  of  wide  experience  and  editor 
of  the  Insurance  Monitor,  succinctly  describes  the  success  of 
the  series  when  he  wrote : 

"  Mr.  Graham  has  rivaled  the  professional  writers  of 
fiction  in  the  interest  with  which  he  has  clothed  his  nar- 
ratives and  the  vivid  pictures  which  he  has  sketched,  while 
at  the  same  time  he  has  sacrificed  nothing  of  their  fidelity 
to  truth,  or  their  educational  value  to  the  public.  '  The 
Romance  of  Life  Insurance '  has  been  written  with  this  pur- 
pose in  view  and  is  admirably  adapted  to  accomplish  the  end 
designed  by  its  author,  who  is  an  actuary  of  exceptional  and 
varied  talent." 

At  the  time  of  conceiving  the  articles  it  was  not  planned 
to  reproduce  the  work  as  a  volume.  The  demand  for  this 
came  spontaneously  and  insistently  from  field  men  who  had 
found  the  series  discussed  among  their  clients  and  helpful 
to  their  cause,  and  from  those  interested  generally  in  the 
cause  of  life  insurance,  to  preserve  in  this  work  a  current 
story  of  the  epoch  of  the  life-insurance  investigation.  Slight 
modifications  have  been  made  in  the  volume,  the  better  to 
achieve  the  purpose  of  having  these  serial  sketches  embody 
an  enduring  chronicle  of  the  investigation  period. 

The  book  is  written  in  popular  style,  easily  understanda- 
ble to  the  layman,  to  whom  it  brings  home,  in  telling  fashion, 


Publisher's  Preface.  11 

life-insurance  truths.  The  articles  are  a  mine  of  valuable 
information  —  the  kind  of  information  and  material  that  the 
active  insurance  man  needs  in  his  daily  work.  Sentences, 
paragraphs  and  chapters  of  "  The  Romance  "  as  it  ran  as  a 
serial  were  variously  found  to  attract  the  attention  of  every 
conceivable  type  of  insurance  prospect  and  policyholder. 

As  a  canvassing  document,  the  serial  was  stated  by  suc- 
cessful agents  to  be  unrivaled,  and  it  is  hoped  to  give  fur- 
ther effect  to  this  feature  of  "  The  Romance  "  by  combining 
the  several  serial  numbers  as  a  connected  story. 

THE  WORLD  TO-DAY  COMPANY. 


"  American  life  insurance  will  live  to  bless  our 
people  as  long  as  American  civilization  lasts,  and 
will  endure  and  grow  as  long  as  civilized  man,  while 
living,  takes  forethought  of  the  event  of  death.'* 

—  GROVER  CLEVELAND. 


12 


The  Romance  of  Life  Insurance 


CHAPTER  I. 
LIFE  INSURANCE  — EVERYBODY'S  PROBLEM. 

WHAT  do  you  know  about  life  insurance  —  the  institu- 
tion  that   most   intimately   concerns   you    and   your 
dependents  —  the  moneys  variously  estimated  to  comprise 
the  larger  part  of  the  estates  of  all  who  leave  anything 
behind  them? 

Hear  the  words  of  Lieutenant-Governor  Thorne,  of  Ken- 
tucky, before  a  conference  of  governors,  attorney-generals 
and  insurance  commissioners,  called  at  Chicago  in  February, 
1906,  to  consider  the  life-insurance  situation,  and  arraign 
yourself  by  the  breadth  of  the  smile  of  good  fellowship  and 
understanding  of  this  Kentuckian,  when  he  addressed  the 
chairman  as  follows : 

Mr.  Chairman,  I  must  say  that  the  gentleman  —  whom  I  do  not 
know  —  told  you  the  truth  when  he  said  I  did  not  know  a  deferred 
dividend  from  a  bundle  of  firewood.  We  people  'way  down  in 
Kentucky  and  in  the  Southwest  don't  know  anything  about  insur- 
ance at  all.  There  is  only  one  thing  we  do  know  —  we  have  to  pay 
our  premiums  on  our  insurance  policies,  or  make  our  annual  con- 
tributions to  the  campaign  fund.  We  are  forced  to  do  that  under 
penalty  of  our  lapse  of  policies,  and  some  few  of  us  have  been 
insured  so  long,  and  imposed  on  so  long,  that,  like  the  fellow  who 
had  hold  of  the  train,  we  can  not  afford  to  let  go  now.  ...  I 
was  out  in  the  country  taking  depositions  some  time  ago,  at  the 
house  of  a  fellow  who  was  very  loud-mouthed  about  insurance.  He 
had  a  picture  framed  and  hung  on  the.  wall,  gotten  out  by  an  insur- 
ance company  (I  will  not  say  what  company  it  was  for  fear  of  hurt- 
ing some  fellow's  feelings).  It  was  a  death-bed  scene.  A  man 

13 


14  The  Romance  of  Life  Insurance. 

was  lying  there  with  the  death-sweat  on  his  brow;  his  wife  was 
standing  over  him,  wiping  off  his  forehead,  and  he  had  a  broad 
grin  on  his  face,  and  he  was  saying,  "  Don't  be  disturbed  —  I'm 

insured  in  the  ! "    I  saw  him  again  the  other  day,  and  I 

said  to  him,  "  Uncle  John,  what  have  you  done  with  that  picture  ?  " 
He  said,  "  Great  God,  I've  got  it  turned  to  the  wall."  He  said,  "  I 
don't  know  whether  my  policy  is  any  account  or  not;  what  do  you 
you  think  ?  "  I  said,  "  Good  as  the  bank ;  there  is  no  election  for 
four  years." 

Genial  Governor  Thorne  expressed  in  his  facetious  speech 
an  attitude  of  insurance  ignorance  frankly  assumed  by  men 
in  high  places,  and  fashionably  followed  by  the  insured  and 
the  uninsured  alike.  What  Governor  Thorne  said  of  Ken- 
tucky is  equally  true  of  every  other  State  in  the  Union.  Yet, 
consider  the  Kentucky  situation  alone. 

In  the  year  in  which  that  speech  was  made  nearly  $3,000,- 
ooo  was  paid  in  death  claims  in  the  State  of  Kentucky.  It 
may  not  be  possible  to  verify  the  estimate  that  this  sum  con- 
stituted the  greater  part  of  the  estates  left  by  the  citizens  of 
Kentucky  who  died  during  that  year,  but  it  stands  for  what 
it  is  —  $3,000,000,  paid  in  claims  of  small  amount,  reaching 
in  its  immediate  protective  circle  probably  fifteen  to  twenty 
thousand  Kentuckians,  mostly  women  and  children.  Beyond 
this,  there  was  in  force  in  Kentucky  two  hundred  millions  of 
insurance,  there  was  written  in  that  State  during  the  year 
thirty-five  millions  of  insurance,  and  unfortunately  citizens 
of  that  State  lapsed  during  the  year  thirty  millions  of  insur- 
ance. Think  of  the  men,  women  and  children  to  whom  these 
figures  are  potent  realities,  all  in  the  one  State,  Kentucky, 
and  all  concerned  in  a  matter  treated  so  facetiously. 

K  there  is  one  thing  more  wonderful  than  the  progress 
of  life  insurance  in  America,  it  is  the  complacent  ignorance 
of  Americans  regarding  it.  Considering  that  the  incidental 
features  of  life  insurance  science  are  of  compelling  interest 


Life  Insurance  —  Everybody's  Problem.          1 5 

wholly  aside  from  the  business  of  protection,  this  ignorance 
and  apathy  are  still  less  understandable. 

As  the  exponent  of  a  practical  system  of  the  many  shar- 
ing the  burdens  of  the  few,  life  insurance  has  its  approach 
and  analogy  to  communism  and  socialism  —  both  here  in 
America,  where  it  is  exploited  through  corporations,  and 
abroad,  where,  in  addition  to  corporate  mediums,  exist  sys- 
tems of  compulsion  and  paternalism.  The  clamor  of  the 
British  proletariat  for  old-age  pensions,  the  stoical  German 
workman's  compulsory  insurance,  the  Australian  experiment 
in  government  insurance,  are  incidental  features  of  the  life- 
insurance  business  representing  live  public  issues  of  the  day. 

View  its  proportions.  _Jw^nty-fojiTjtmllipji_2plicies  are  in 
force  in  the  United  States  and  Canada.  Assuming  that 
between  three  and  four  people  are  directly  interested  in  the 
life  of  each  policy,  you  attain  numerically  the  entire  popula- 
tion of  the  United  States  and  territorial  possessions. 

That  able  and  agressive  generalship  has  guided  the  life- 
insurance  business  is  attested  by  its  success  —  measured  in 
one  way  by  the  payment  of  five  hundred  millions  of  dollars 
to  policyholders  and  beneficiaries  during  the  year  1907  by 
American  and  Canadian  companies,  and  in  another  way  by 
the  record  of  five  billion  dollars  paid  to  policyholders  and 
beneficiaries  during  the  fifty  years  of  its  existence.  That 
this  generalship  has  not  been  in  all  qualities  and  at  all  times 
above  reproach  is  admitted. 

To  the  interest  inherent  in  life  insurance  have  been  added 
the  dramatic  occurrences  on  the  life-insurance  stage  of  the 
last  three  years  —  the  beginning  of  better  things  in  a  coun- 
try's commercial  morals. 

Apart  from  the  amusement  and  entertainment  that  can 
be  derived  in  the  acquisition  of  a  little  life-insurance  knowl- 
edge, it  becomes  the  obligation  of  practically  all  to  know 


16  The  Romance  of  Life  Insurance. 

how  to  make  use  of  life  insurance.  Should  not  the  inde- 
pendent know  how  to  protect  their  dependents,  and  thereby 
insure  their  own  independence?  And  the  dependent  — 
should  they  not  strive  to  learn  how  best  to  avoid  the  pauper- 
ism from  which  their  dependency  is  narrowly  separated  by 
that  uncertain  thing  —  the  life  of  another  ? 

Governor  Thorne  was  right  —  the  people  do  not  know 
life  insurance,  as  his  ready  wit  portrays  —  but  not  even  the 
ready  wit  of  Governor  Thorne  can  patch  a  defense  for  ignor- 
ance in  so  important  a  matter,  or  for  the  toleration  of 
impositions  that  are  alleged  in  spite  of  confessed  ignorance. 

A  man  who  seeks  commodities,  privileges  and  luxury,  in 
their  respective  markets,  as  his  need  or  taste  suggests,  defers 
taking  life  insurance  until  some  agent  singles  him  out,  suc- 
ceeds in  getting  an  interview,  and  persuades  him,  from  the 
outside,  of  his  own  needs.  Most  times  he  does  not  read  the 
policy  when  delivered. 

Did  you  ever  read  your  policy  ?  Do  you  know  its  terms 
and  privileges,  and  how  to  use  them  —  you  who  study  yards 
of  abstracts  when  you  make  a  small  real-estate  transaction, 
and  you  whose  whole  family  knows  every  word  in  the  lease 
of  your  apartment  or  of  your  house?  No  wonder  there  is 
discontent  and  dissatisfaction  among  policyholders.  No 
wonder  there  are  misfits  in  policies.  No  wonder  life  insur- 
ance is  clumsy  in  its  failure  to  reach  and  protect  thousands 
and  thousands  of  weak  women,  weaker  children,  and  weak- 
est aged. 

Here  are  two  messages  from  life  insurance  to  you: 

Read  your  policies  and  learn  what  they  are. 

Buy  the  protection  that  you  need  and  that  your  family 
needs,  as  you  would  buy  your  fuel  or  your  food.  The  starv- 
ing and  freezing  process  may  follow  as  certainly  the  neglect 
of  initiative  in  the  one  case  as  in  the  other.  Who  would  be 


Life  Insurance  —  Everybody's  Problem.          1 7 

cowardly  enough  to  add,  "  Maybe  so,  but  not  to  me  per- 
sonally?" 

Vague  ideas  exist  of  mysteries  in  the  life-insurance  busi- 
ness beyond  common  ken.  There  has  been  reason  for  this  in 
the  past,  not  wholly  accounted  for  by  the  apathy  of  the 
public  and  the  policyholder.  Life-insurance  companies  dis- 
covered that  well-organized  agencies,  persuaded  of  their 
cause,  could  insure  the  public  by  buttonhole  campaign,  with- 
out entailing  loss  of  energy  through  widespread  diffusion  of 
life-insurance  principles.  The  agent  was  told  to  concentrate. 
His  business  was  to  get  the  application  signed.  He  soon 
learned  he  was  paid  for  this,  and  not  for  educational  work. 
The  progress  of  the  business  justified  the  acumen  of  life- 
insurance  management  as  to  volume,  but  left  the  vulnerable 
spot  of  life-insurance  ignorance. 

Witness  the  result.  Policyholders  frenzied  by  exposures 
bad  enough  in  themselves,  but  exaggerated  by  scare  head- 
lines to  ridiculous  proportions,  have  failed  to  understand  and 
defeat  legislation  designed  to  remedy,  but  which  could  only 
inflict  evils  worse  by  far  than  the  things  these  laws  would 
correct. 

Life-insurance  legislation,  therefore,  is  a  problem  that 
affects  alike  the  nation,  the  State,  and  the  hearth,  and  is 
worthy  of  the  intelligent  deliberation  of  legislative  bodies 
and  of  the  people  that  give  them  power.  The  life-insurance 
legislation  that  has  followed  the  investigation  has  been,  in 
many  ways,  wise  and  beneficial,  and  in  many  other  ways 
childishly  restrictive  and  ridiculously  paternal. 

The  spectacle  of  the  companies  of  the  country  being 
driven  out  of  the  great  State  of  Wisconsin  through  legisla- 
tion impossible  of  consistent  construction  by  the  men  who 
recommend  and  enacted  it,  would  be  humorous  were  it  not 
destructive  in  effect,  and  disastrous  to  the  people  of  Wis- 


18  The  Romance  of  Life  Insurance. 

consin,  who  have  given  force  to  these  laws  by  electing  the 
men  who  perpetrated  them.  Many  of  the  most  economical 
and  most  approved  companies  in  the  country  have  reluc- 
tantly withdrawn  from  Wisconsin,  depriving  the  people  of 
that  State  of  the  ability  to  be  served  by  their  agents ;  depriv- 
ing these  agents  of  a  means  of  livelihood,  wherein  they  did 
service  to  the  State  and  nation,  as  well  as  to  the  individual ; 
and  depriving  the  companies  of  the  volume  of  business 
which  should  legitimately  come  from  that  great  State. 

For  wise  legislation  in  the  future,  the  companies  must 
depend  on  what  they  should  have  been  able  to  have  depended 
on  at  all  times  —  publicity  and  policyholders.  The  times  are 
ripe  now  for  making  publicity  effectual  in  life  insurance,  by 
arousing  the  public  to  its  obligations  in  having  not  only 
honest  and  wise  management  of  their  companies,  but  honest 
and  wise  laws  under  which  these  companies  can  live  and 
thrive. 

The  functions  of  life  insurance  are  far-reaching.  While 
the  faculty  for  providing  through  life  insurance  a  legacy  to 
dependents  that  saves  these  dependents  from  becoming  a 
legacy  to  orphan  asylums  and  charitable  institutions,  places 
life  insurance  on  a  plane  of  usefulness  second  to  no  other 
institution,  it  does  not  comprehend  the  various  functions  of 
life  insurance. 

The  business  man  of  to-day  has  learned,  and  is  learning, 
the  value  of  protecting  his  business  through  life  insurance  on 
those  supplying  capital  or  brains  to  the  enterprise.  In  the 
city  of  Minneapolis  is  a  great  grain  and  flour  enterprise,  the 
Peavey  Company.  An  insurance  of  $1,000,000  upon  the 
head  of  this  corporation,  the  late  Frank  H.  Peavey,  whose 
personal  prestige  and  credit  were  not  overrepresented  by  this 
sum,  proved  of  great  benefit  to  the  company  and  its  credit 
upon  the  unexpected  death  of  Mr.  Peavey.  Only  two  annual 


Life  Insurance  —  Everybody's  Problem.          19 

premiums  were  paid  upon  this  policy.  This  is  but  one  case 
in  point.  There  are  many  others.  Interesting  among  these 
is  a  case  where  a  large  estate  was  tied  up  in  New  York  city 
under  the  conditions  of  a  will  that  called  for  the  income  of 
the  estate  to  be  divided  among  five  people,  until  the  youngest 
reached  twenty-five  years  of  age,  when  it  was  to  revert  to 
certain  legatees.  These  legatees  secured  the  immediate 
settlement  of  the  estate  by  having  a  life-insurance  company 
assume  for  a  proper  premium  the  paying  of  this  income 
under  the  terms  of  the  will. 

Far-reaching,  indeed,  is  the  arm  of  life  insurance,  and 
the  need  of  knowing  how  to  make  it  serve. 

One  company  alone  in  America  has  in  its  membership 
one-tenth  of  the  entire  population  of  the  United  States.  The 
work  of  this  one  company  makes  life  insurance  a  national 
problem.  It  has  more  policyholders  than  the  combined  popu- 
lation of  twenty-four  of  the  States  and  territories  of  the 
fifty-two  forming  the  American  union,  exceeding  the  com- 
bined population  of  Greater  New  York,  Chicago,  Philadel- 
phia, Boston,  St.  Louis,  Cleveland,  Cincinnati  and  Minne- 
apolis. 

There  is  another  company  in  the  country  whose  assets 
amount  at  this  time  to  more  than  one-half  the  national  bank- 
ing capital  of  the  United  States.  These  are  but  few  of 
many. 

Truly  there  have  been  makers  of  life  insurance,  as  there 
have  been  breakers  of  life  insurance,  and  those  both  makers 
and  breakers.  The  story  of  the  makers  is  a  story  of  unex- 
celled achievement.  The  tale  of  the  breakers  chronicles  at 
the  same  time  a  moral  awakening.  The  tragedy  of  those 
who  were  both  makers  and  breakers  brings  out  the  eternal 
verity  that  no  man  can  serve  two  masters. 

Then  there's  the  erstwhile  yellow  dog,  ugly  in  its  yellow- 


20  The  Romance  of  Life  Insurance. 

ness,  perhaps  faithful  to  its  purpose,  but  withal  a  cur.  The 
history  of  the  yellow  dog  goes  back  to  the  yellowest  cur  of 
all  —  the  strike  legislator  that  whistled  it  into  being  —  and 
concludes  with  the  judgment  of  saffron-hued  legislation  that 
has  marked  its  obsequies. 

What  about  the  campaign  funds,  to  which  Governor 
Thorne  alluded  so  humorously  ?  The  yellow  dog  again  — 
this  time  as  guardian  of  billions  of  dollars  value,  pitifully 
raising  its  contemptible  bark  in  answer  to  the  free-silver  cry. 
The  yellow  dog  is  dead.  No  more  will  it  thrive  where  it 
could  only  ineffectually  guard,  and  grateful  memory  must 
record  in  its  death  a  stampede  among  its  fellows  that  has 
improved  the  morals  of  a  nation. 

The  ideal  in  life-insurance  management  and  control  is  no 
less  difficult  to  attain  and  preserve  than  the  ideal  in  any  other 
business  in  America.  That  the  public  expects  more  of  life 
insurance  is  in  itself  complimentary  to  the  cause,  and  that 
life  insurance  more  nearly  approaches  the  ideal  than  any 
other  business  interest  in  America  is  to-day  a  growing  belief. 

It  becomes  the  portion  of  the  public  to  recognize  the  tre- 
mendous importance  of  life  insurance  —  as  an  economic 
factor,  and  as  a  financial  power,  as  well  as  its  usefulness  for 
protection  against  the  vicissitudes  of  uncertain  death  and 
needy  age. 

It  would  be  difficult  to  exaggerate  the  many  ways  in 
which  insurance  may  command  the  interest  of  the  American 
people.  American  life  insurance  should  be  to-day  one  of  the 
greatest  boasts  of  Americans.  In  the  words  of  Grover 
Cleveland,  "  American  life  insurance  will  live  to  bless  our 
people  as  long  as  American  civilization  lasts,  and  will  endure 
and  grow  as  long  as  civilized  man,  while  living,  takes  fore- 
thought of  the  event  of  death." 


CHAPTER  II. 
THE  LIFE-INSURANCE  INVESTIGATION. 

As  a  volume  designed  to  record  the  era  introduced  by  the  life- 
insurance  investigation,  it  appears  advisable  to  include  a  chapter  not 
included  in  the  original  serial  story,  in  order  to  embody  a  brief 
description  of  the  appointment,  the  personnel  and  the  scope  of  the 
Armstrong  Investigation  Committee. 

This  brief  chapter  on  "  The  Life-insurance  Investigation "  ^has 
been  prepared  to  chronicle  for  fading  memory  events,  dates  and  pur- 
poses of  the  New  York  legislative  investigation  of  life  insurance  in 
1905. 

THE  Armstrong  Legislative  Investigation  Committee  was 
appointed  concurrent  to  a  resolution  adopted  jointly  by 
the  Senate  and  Assembly  of  the  State  of  New  York,  July  20, 
1905.  The  resolution  sets  forth  the  reasons  for  the  appoint- 
ment of  the  committee  and  the  general  scope  and  plan  of  the 
investigation.  It  was  in  full  as  follows: 

WHEREAS,  It  appears  from  a  preliminary  report  of  the  State 
Superintendent  of  Insurance  on  the  Equitable  Life  Assurance  Soci- 
ety of  New  York  that  the  interests  of  policyholders  and  their  bene- 
ficiaries in  life-insurance  companies  doing  business  in  the  State  of 
New  York  are  not  properly  safeguarded  by  existing  laws,  and  that 
a  revision  of  the  insurance  laws  of  the  State  should  be  undertaken; 
and, 

WHEREAS,  The  inquisitorial  powers  of  the  Superintendent  of 
Insurance  are  limited  to  the  examination  of  the  officers  and  agents 
of  the  companies  and  their  books  with  reference  to  their  business, 
and  with  a  view  to  their  solvency  chiefly,  and  it  is  expedient  that  as 
a  basis  for  legislation  the  operations  of  such  life-insurance  compa- 
nies should  be  investigated  as  fully  and  as  promptly  as  may  be; 

Resolved,  If  the  Assembly  concur,  that  a  joint  committee  be 
appointed,  consisting  of  three  members  of  the  Senate  and  five  mem- 


24  The  Romance  of  Life  Insurance. 

bers  of  the  Assembly,  which  committee  shall,  after  adjournment  of 
the  extraordinary  session,  proceed  to  investigate  and  examine  into 
the  business  and  affairs  of  life-insurance  companies  doing  business 
in  the  State  of  New  York,  with  reference  to  the  investments  of  said 
companies,  the  relation  of  the  officers  thereof  to  such  investments, 
the  relation  of  such  companies  to  subsidiary  corporations,  the  gov- 
ernment and  control  of  said  companies,  the  contractual  relations  of 
said  companies  to  their  policyholders,  the  cost  of  life  insurance,  the 
expenses  of  said  companies  and  any  other  phase  of  the  life-insurance 
business  deemed  by  the  committee  to  be  proper,  for  the  purpose  of 
drafting  and  reporting  to  the  next  session  of  the  Legislature  such  a 
revision  of  the  laws  regulating  and  relating  to  life  insurance  in  this 
state  as  said  committee  may  deem  proper. 

Further  resolved,  That  the  said  committee  be  and  it  hereby  is 
authorized  and  empowered  to  require  and  enforce  the  attendance  of 
witnesses,  and  the  production  of  books  and  papers,  to  administer 
oaths,  and  to  employ  counsel,  stenographers,  clerks  and  such  other 
employees  as  may  be  necessary  for  the  purposes  of  the  investigation. 
And  a  sum  not  exceeding  fifty  thousand  dollars  ($50,000)  is  hereby 
appropriated  out  of  any  moneys  in  the  treasury,  not  otherwise  appro- 
priated, for  the  purposes  of  said  committee. 

Pursuant  to  this  resolution  three  members  of  the  Senate 
and  five  members  of  the  Assembly  were  appointed  as  a  com- 
mittee, with  Senator  William  W.  Armstrong  as  chairman  of 
the  committee,  and  Assemblyman  Ezra  P.  Prentice,  secre- 
tary. The  other  members  of  the  committee  were :  Senators 
William  J.  Tully,  Daniel  J.  Riordan,  and  Assemblymen 
Robert  Lynn  Cox,  James  T.  Rogers,  William  W.  Wemple, 
John  McKeown.  The  committee  was  assisted  by  Charles  E. 
Hughes  and  James  McKeen  as  counsel,  and  Matthew  C 
Fleming  as  assistant  counsel,  Miles  M.  Dawson  as  consulting 
actuary,  and  Marvin  Scudder  as  financial  statistician. 

The  committee  organized  on  August  i,  1905,  and  began 
its  public  hearings  on  September  6,  1905,  continuing  con- 
secutively for  fifty-seven  sessions,  the  concluding  session 
being  held  on  the  3Oth  of  December,  1905. 


The  Life-insurance  Investigation.  25 

In  opening  the  public  hearings  Chairman  Armstrong  out- 
lined the  position  of  the  committee  in  the  matter  of  counsel, 
which,  for  purposes  of  preserving  a  record  of  the  investiga- 
tion, constitutes  an  important  supplement  to  the  original 
resolution.  Mr.  Armstrong  said: 

Mr.  McKeen  and  Mr.  Hughes,  with  Mr.  Fleming  as  an  assistant, 
are  here  upon  behalf  of  the  committee. 

Now,  the  committee  desires  to  know  who,  of  the  companies 
interested,  are  represented  by  counsel,  and  would  be  glad  to  have 
their  presence  noted,  not  as  conferring  formal  rights,  which  an 
appearance  would  ordinarily  confer,  because  the  committee's  time  is 
too  limited  to  permit  of  more  than  the  proper  courtesy  as  we  go 
along. 

We  will  for  the  present  assume,  if  I  may  speak  frankly,  that 
counsel  who  are  here,  other  than  our  own  counsel,  have  no  rights, 
but  are  entitled  to  every  courtesy  and  the  committee  will  endeavor 
to  show  them  every  courtesy  that  is  compatible  with  the  per- 
formance of  our  duties,  within  the  time  that  we  have  to  perform 
them  in. 

We  desire,  however,  to  know  who  are  here  by  authority,  repre- 
senting any  of  the  interested  companies  or  parties,  and  would  be 
glad  to  note  the  appearance  of  those. 

This  attitude  on  the  part  of  the  Armstrong  Committee 
was  necessitated  by  the  limitations  of  time  within  which  the 
committee  must  labor  in  endeavor  to  cover  an  immense  field 
of  operation.  At  the  time  of  the  hearings,  and  even  for 
months  afterward,  the  public  was  misled  by  the  sensational 
press  into  misunderstanding  the  purposes  and  operation  of 
the  Armstrong  Committee.  The  functions  of  the  committee 
as  a  body  probing  only  for  abuses  and  methods  susceptible 
to  abuse  is  yet  misunderstood  to  have  been  more  or  less  of  a 
trial  of  life  insurance.  Had  life  insurance  been  on  trial  it 
would  have  been  in  position  to  offer  in  rebuttal  something  of 
its  constructive  work,  which  would  have  minimized  the  evils 
and  abuses  of  the  time  to  a  point  that  would  have  robbed  the 


26  The  Romance  of  Life  Insurance. 

Armstrong  Committee  of  much  of  its  power  for  good. 
There  was  no  misunderstanding  of  the  purpose  of  the  com- 
mittee on  the  part  of  the  companies,  as  shown  by  the  reply 
of  ex-Governor  Black  to  Senator  Armstrong's  opening  com- 
ment. Mr.  Black  spoke  for  all  life  insurance  when  he  said : 

Mr.  Chairman,  I  appear,  so  far  as  an  appearance  is  permitted  or 
proper,  for  the  Equitable  Society. 

I  am  not  here  to  interpose  any  defense  or  consume  the  time  of 
the  committee,  but  I  desire  to  say  at  the  outset,  that  so  far  as  I  can, 
representing  the  Equitable  Society  here,  and  so  far  as  the  Equitable 
Sociey  can,  with  any  information  or  documents  in  its  possession,  we 
shall  aid  the  work  of  the  committee  and  the  counsel  for  the  commit- 
tee in  every  way. 

It  may  be  desirable,  and  if  it  is,  in  my  judgment  and  in  the  judg- 
ment of  my  client,  I  hope  it  will  be  permitted  later  on  possibly  to 
offer  some  explanation,  as  the  testimony  proceeds  and  as  the  inves- 
tigation grows  older  and  the  necessities  of  the  situation  disclose 
themselves.  That  is  all,  your  honor,  which  I  have  any  desire  to  say. 

One  more  comment  is  all  that  is  necessary  to  complete 
this  chronological  record  of  the  purposes  and  method  of 
operation  of  the  Armstrong  Committee.  It  is  this :  that  the 
request  of  Mr.  Black  that  the  companies  might  be  permitted 
to  introduce  explanations  as  the  testimony  proceeded  was 
not  granted.  Possibly  there  was  much  of  wisdom  in  this,  as 
the  Armstrong  Committee  planned  the  investigation,  but  it 
proved  disastrous  for  the  time  being  to  life  insurance, 
because  of  the  misrepresentation  of  the  functions  of  the 
Armstrong  Committee  by  the  popular  press  in  detailing  the 
testimony. 


Copyright,  1906,  by  Underwood  &  Underwood. 

GROVER  CLEVELAND. 


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GROVER  CLEVELAND, 
Pacifier  of  the  Equitable  turmoil. 


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CHAPTER   III. 
THE  AFTERMATH  OF  THE  INVESTIGATION. 

TO  quote  from  Josh  Billings :  "  Tis  better  not  to  know 
so  much,  than  to  know  so  much  that  ain't  so."  If  life- 
insurance  truths  have  not  been  widely  disseminated  and 
assimilated,  life-insurance  untruths  have.  Lack  of  knowl- 
edge as  to  what  is  so  about  life  insurance  has  been  offset  by 
excess  information  coined  and  circulated  by  a  sensational 
press  as  to  what  is  not  so.  It  is  a  case,  therefore,  of  know- 
ing both  too  little  and  too  much  at  the  same  time. 

The  era  of  insurance  notoriety,  dating  from  the  internal 
troubles  of  the  Equitable  Life  Assurance  Society,  marked  an 
epoch  of  sensational  assault  upon  the  business,  and  saw  the 
onslaught  of  a  horde  of  hungry  politicians,  whose  ignorance 
of  life  insurance  and  regard  for  the  welfare  of  their  fellow 
man  did  not  deter  from  attempts  to  make  political  capital 
out  of  the  situation. 

"  Truth  crushed  to  earth  will  rise  again,"  but  in  the 
affairs  of  the  American  people  it  is  not  wise  to  attempt  the 
resurrection  of  truth  before  the  public  accepts  the  intro- 
ductory fact  that  truth  was  crushed. 

Preparatory  to  telling  the  constructive  story  of  life  insur- 
ance, it  is  necessary  to  unravel  the  web  of  misapprehension, 
misunderstanding  and  misrepresentation  of  life  insurance 
spun  during  the  period  of  life-insurance  disclosures,  actual, 
alleged,  and  so-called.  Unfortunately,  therefore,  it  is  neces- 
sary to  begin  at  the  last  volume  of  the  story. 

Admittedly  there  were  evils  and  abuses  in  life  insurance 

29 


30  The  Romance  of  Life  Insurance. 

—  possibly  fewer  than  in  any  other  enterprise  or  institution 
of  similar  magnitude.  This,  however,  does  not  alter  the  fact 
that  there  were  evils,  grave  evils,  and  that  evils  are  evils 
wherever  found.  Probing  for  these  evils  with  relentless 
tenacity  constituted  the  entire  work  of  the  now  famous  Arm- 
strong Investigating  Committee  and  its  able  counsel,  Charles 
E.  Hughes,  commissioned  for  this  purpose  by  the  Legislature 
of  New  York. 

The  legislative  investigation  was  not  a  judicial  hearing 
of  the  merits  and  demerits  of  life  insurance,  for  life  insur- 
ance was  not  on  trial.  Yet  this  is  exactly  the  view  the  public 
press  fostered  from  the  commencement  of  the  public  hear- 
ings. With  this  idea  in  the  popular  mind,  it  was  unfortunate 
that  the  time  of  the  investigation  and  the  purposes  for  which 
it  was  organized  did  not  permit  of  some  evidence  of  the  tre- 
mendous constructive  work  done  by  many  of  the  men  and 
institutions  severely  criticized. 

Tritely  expressed,  "  the  way  to  avoid  criticism  is  to  say 
nothing,  to  do  nothing,  and  to  be  nothing."  The  develop- 
ment of  life  insurance  to  the  state  of  usefulness  it  was  then 
enjoying  called  for  continual  activities  from  the  institutions 
that  had  developed  it  and  from  the  human  units  that  made 
those  institutions  what  they  were. 

Consider  the  unexampled  frankness  of  John  A.  McCall 
upon  the  witness  stand.  McCall  went  on  that  stand  without 
counsel,  as  did  all  other  life-insurance  witnesses,  with  a 
record  of  success  as  a  superintendent  of  insurance  and  as  a 
builder  of  a  life-insurance  company  —  a  record  that  ranked 
second  to  none,  either  in  insurance  supervision  or  in  con- 
structive life-insurance  work.  He  appreciated  the  character 
of  the  Armstrong  investigation,  the  limits  of  its  time,  the 
fact  that  it  was  not  there  to  applaud  his  achievements  in 
constructive  life  insurance,  but  was  there  to  criticize  errors 


The  Aftermath  of  the  Investigation.  31 

that  had  been  made  by  him  and  under  his  supervision,  which 
he  told  of,  unsparingly. 

At  this  day,  listening  to  the  name  of  John  A.  McCall 
reverently  spoken  by  the  public  at  large,  by  the  press  that 
assailed  him,  by  the  supervising  State  officials  whose  duty 
called  for  criticism,  by  his  sometime  rivals,  it  seems  a  strange 
commentary  upon  the  investigation  that  during  its  continu- 
ance the  sensational  press  should  have  swayed  the  public 
mind  to  see  nothing  but  the  mistakes  made  by  this  man 
whose  judgment  was  daily  deciding  problems  involving 
millions  of  dollars  and,  to  large  extent,  the  happiness  of 
thousands  of  homes. 

The  case  of  McCall  is  quoted  as  a  gage  of  public  frenzy. 
That  this  illustration  be  not  misunderstood  as  either  a  tolera- 
tion of  the  errors  McCall  admitted  or  for  a  defense  in 
general  of  all  who  appeared  upon  the  stand,  another  example 
must  be  introduced. 

Enter  the  McCurdys.  Richard  A.  McCurdy  to  the  stand, 
executive  at  a  salary  fifty  per  cent  greater  than  that  of 
McCall.  The  company  that  he  represented  was  a  great 
institution,  but  its  greatness  was  founded  upon  the  wonder- 
ful work  of  Winston,  whose  name  endures  in  life-insurance 
history,  and  continued  by  the  man  now  vice-president  and 
actuary  of  the  company,  whose  position  in  the  scientific 
world  is  unassailed  and  unassailable.  In  connection  with 
this  distinguished  actuary  worked  another  master  builder, 
the  company's  present  second  vice-president  and  agency 
manager. 

"  You  must  ask  the  actuary  about  that,"  was  Richard  A. 
McCurdy's  usual  reply  when  he  varied  his  "  I  don't  know." 

When  the  younger  McCurdy  said  on  the  stand  that  he 
"  didn't  know,"  he  accurately  described  the  situation  for  the 
most  part.  Skeptics  not  inclined  to  be  entirely  charitable 


32  The  Romance  of  Life  Insurance. 

will  challenge  this  statement  as  it  applied  to  the  enormous 
salaries  being  paid,  directly  and  in  commissions,  to  relatives 
who,  like  the  gentleman  himself,  were  not  indispensable  to 
the  institution  they  represented.  When  the  probe  of  the 
investigation  went  into  the  weak  spots  of  the  McCurdys,  in 
the  judgment  of  many  insurance  men  it  covered  them  all 
over. 

This  statement  stands  unchallenged:  the  investigation 
was  not  a  trial  of  life  insurance  as  an  institution,  or  of  any 
life-insurance  company  as  part  of  the  great  life-insurance 
body,  and  so  far  as  these  institutions  were  concerned  not  one 
iota  of  their  monumental  service  to  the  public  crept  into  the 
procedure  of  the  Armstrong  Committee. 

Without  representation  by  counsel,  without  right  to 
amplify  answers,  the  work  of  the  most  fairminded  investi- 
gator must  elicit  responses  from  witnesses  that  produce  mis- 
conceptions. To  quote  from  Governor  Hughes  in  a  recent 
speech : 

We  have  had  an  investigation,  but  it  was  one  in  the  interest  of 

life  insurance,  and  not  against  it Then,  we  wanted  to 

secure  in  actual  practice  the  carrying  out  the  theory  of  corporate 
organization,  that  things  should  be  done  openly  and  with  the  con- 
sideration of  those  entrusted  with  the  powers  and  obligations  of 
directors,  and  that  the  measures  that  should  be  taken  should  be  con- 
sidered by  those  who,  under  the  forms  of  the  law,  were  required  to 
consider  them,  and  that,  however  skilful  might  be  the  management, 
however  astute  might  be  the  leadership,  those  having  these  great 
powers  should  be  shielded  from  the  temptation  to  deal  with  matter 
which  would  not  permit  a  vote  of  the  directors  in  their  confirma- 
tion. 

With  the  true  character  and  purposes  of  the  life- 
insurance  investigation  in  mind,  with  the  aim  of  the  politi- 
cians —  of  whom  preeminently  Charles  E.  Hughes  was  not 
one,  then  or  now  —  to  get  as  much  glory  as  possible  out  of 


The  Aftermath  of  the  Investigation.  33 

the  insurance  turmoil,  and  with  the  evidence  of  yellow  jour- 
nalism's historic  sheets  as  to  how  the  Armstrong  evidence 
was  mistated  and  distorted  to  make  sensational  stories,  it  is 
well  for  fuller  understanding,  to  return  to  the  beginning  of 
the  insurance  agitation,  and  therefore  to  the  Equitable  Life 
Assurance  Society. 

To  begin  with  the  society  is  to  begin  with  Henry  B. 
Hyde.  Henry  B.  Hyde  in  1859  was  a  young  man  full  of 
initiative,  struggling  to  keep  a  cash-book  in  the  cashier's 
department  of  the  Mutual  Life  of  New  York.  About  this 
time  the  Mutual  Life  conceived  the  plan  of  starting  the 
Washington  Life  Insurance  Company,  to  do  a  general  life- 
insurance  business,  and  incidentally  to  carry  the  excess  lines 
that  the  Mutual  should  turn  over  to  it.  Young  Hyde,  exas- 
perated by  the  difficulties  of  making  his  cash  balance,  and 
feeling  destined  for  greater  things,  determined  to  start  a 
third  company.  In  confidential  capacity  to  President  Wins- 
ton, he  knew  intimately  of  the  purposes  of  the  new  company, 
and  expected  that  President  Winston  would  welcome  his 
initiative.  Instead  he  was  informed  that  if  he  wished  to 
start  a  company  he  would  have  to  sever  immediately  his 
connection  with  the  Mutual.  This  he  did,  and  so  indomitable 
was  his  energy  and  ability  that  the  Equitable  Life  Assurance 
Society  was  founded  by  himself  and  started  in  active  opera- 
tion some  six  months  before  the  Washington  Life  formally 
commenced  business. 

Hyde's  energy  was  unbounded,  and  his  endurance 
remarkable.  There  was  little  to  attract  investors  to  put  up 
life-insurance  capital,  because  of  limitations  of  earnings,  but 
Hyde  succeeded  in  doing  this,  as  well  as  in  putting  a  large 
volume  of  business  on  the  books,  much  of  which  he  wrote 
personally.  It  was  his  great  ambition  to  make  the  Equitable 
the  biggest  life-insurance  company,  and  then  the  best.  He 


34  The  Romance  of  Life  Insurance. 

did  not  appear  to  conceive  at  first  the  possibilities  of  achiev- 
ing these  two  laudable  purposes  concurrently,  or  perhaps  he 
preferred  not  to  see  it;  or,  as  a  third  possibility,  he  may 
have  thought  the  ultimate  and  larger  interest  would  be  best 
conserved  by  not  seeing  it.  Thus  began  the  race  for  size. 
In  this  race  Henry  B.  Hyde  found  his  greatest  motive  power 
in  deferred  or  tontine  dividends.  Keen  and  masterful  as  he 
was,  it  would  appear  he  did  not  at  first  see  the  possibilities 
for  financial  dominance  the  tontine  principle  gave,  and  which 
later  brought  discredit  on  the  business. 

Theoretically  the  tontine  idea  is  that  dividends  be 
deferred  some  definite  period,  usually  twenty  years,  from  the 
date  of  the  policy,  and  then  be  divided  among  all  survivors 
who  have  continued  their  insurance  until  that  time.  The 
result  of  this  is  to  increase  greatly  the  dividends  by  interest 
earnings  thereon  within  the  twenty-year  period,  and  at  the 
same  time  increase  further  their  individual  size  by  dividing 
only  among  the  persisting  survivors. 

The  arguments  advanced  for  the  sale  of  deferred  divi- 
dends by  Henry  B.  Hyde,  which  are  tenable  in  themselves, 
are  that  the  dividend  earnings  should  logically  go  to  reduce 
the  cost  of  insurance  to  those  who  persist.  Thus  he  argued 
that  the  policies  of  those  who  died  benefited  from  the  pre- 
miums of  the  persisting  members,  and  that  those  who  lapsed 
were  not  entitled  to  dividend  participation,  thus  returning  to 
the  point  that  the  dividends  should  most  properly  be  paid 
to  survivors.  In  these  contentions,  which  at  the  time  did 
not  entail  the  abuse  which  followed  from  the  vast  accumula- 
tion of  unaccounted  deferred  dividend  wealth,  Mr.  Hyde 
and  his  company  were  bitterly  opposed  by  all  the  other  com- 
panies, notably  his  former  employers,  the  Mutual  Life  of 
New  York. 

The  Mutual  Life,  the  New  York  Life  and  the  North- 


The  Aftermath  of  the  Investigation.  35 

western  Mutual  time  and  again  assailed  the  tontine  principle 
in  bitter  attack,  only  to  adopt  it  later  as  they  realized  that 
Hyde  had  developed  popularity  for  this  form  of  insurance 
and  was  enabled  by  means  of  the  large  funds  it  left  for  the 
time  being  unaccounted  and  at  his  disposal  to  push  actively 
for  new  business. 

The  race  was  on  —  the  race  for  size  —  and  these  com- 
panies found  their  only  hope  to  keep  pace  with  Hyde  and 
the  Equitable  was  to  develop  the  deferred  dividend  principle 
with  its  possibilities  for  extravagance  in  pursuit  of  volume. 

Did  all  companies  adopt  the  deferred  dividend  principle, 
and  were  all  alike  struggling  by  every  means  for  volume? 
No.  The  deferred  dividend  principle  was  attacked  more 
vigorously  from  the  inside  than  from  without.  Many  com- 
panies never  adopted  it,  although  it  continued  its  popularity 
before  the  public  until  the  time  of  the  investigation. 

Know  and  remember  that  the  abuses  brought  out  in  the 
investigation  were  almost  exclusively  concerned  with  the 
dividend  feature  of  life  insurance.  No  old-line  company 
had  defaulted  a  dollar  in  contract  obligations ;  its  legal  lia- 
bilities were  sacredly  recognized.  Deferred  dividend  funds 
were  not  then  legally  liabilities,  and  only  in  the  nonaccount- 
ability  of  these  funds  and  the  lessening  dividend  did  the 
abuses  come  home  to  the  policyholder.  Life  insurance  as 
an  institution  was  only  incidentally  involved,  as  dividends 
must  ever  remain  incidental  and  subordinated  to  the  real 
business  of  insurance  protection. 

The  incidental  character  of  dividends  was  developed  to 
the  amusement  of  a  number  of  men  in  a  prominent  club,  at 
the  time  of  the  investigation.  One  of  the  club  members 
accosted  a  life-insurance  general  agent  with  the  statement 
that  he  needed  insurance  protection,  and  wanted  to  take  out 
a  large  policy.  The  agent  immediately  began  talking  life 


36  The  Romance  of  Life  Insurance. 

insurance  to  him,  but  found  that  the  man  reverted  continu- 
ally from  his  original  proposition  to  the  subject  of  dividends. 
Finally  the  agent  said,  "  Here,  man,  I'm  offering  you  a 
horse,  and  you  are  trying  to  buy  a  harness !  "  The  truth  of 
this  carried  conviction  to  both  policy  buyer  and  listeners. 

The  very  word  "  dividend "  is  a  misnomer,  as  any 
thoughtful  man  will  see  upon  reflection.  The  business  of 
mutual  life  insurance  is  to  furnish  protection  in  whatever 
form  the  applicant  prefers  to  have  it,  and  at  cost. 

Life  insurance  is  the  only  thing  the  public  can  get  at 
cost. 

It  is  imperative  that  a  rate  be  charged  for  insurance  in  a 
mutual  life-insurance  company  that  will  make  certain,  with 
proper  management,  the  discharge  of  the  sacred  obligation 
involved  in  life-insurance  contracts.  Where  this  premium 
proves  to  be  above  actual  necessity,  above  actual  cost,  it  is 
returned  to  the  policyholder  under  the  name  of  dividend. 

In  the  struggle  for  volume,  commissions  increased  in 
size,  and  the  pressure  for  production  introduced  into  life 
insurance  the  insidious  rebate. 

The  rebate  was  a  peculiar  practice  in  itself.  It  appeared 
in  many  forms,  and  under  many  guises,  with  dire  results  to 
life  insurance.  Under  the  leadership  of  the  big  companies, 
the  agents  for  many  of  the  small  corporations  met  rebate 
competition  with  rebates  of  equal  or  larger  size,  necessi- 
tating large  brokerages,  or  high  first  commissions. 

Thus  life  insurance  spread  and  grew.  Higher  first  com- 
missions paid  during  this  period  only  partly  went  to  the 
agent,  the  balance  finding  its  way  back  in  rebates  to  the  pur- 
chaser of  the  insurance.  This,  of  course,  brought  about 
inequities,  as  many  a  man  received  his  policy  practically 
without  cost  the  first  year,  while  others  were  paying  their 
premiums  in  whole  or  in  larger  part. 


The  Aftermath  of  the  Investigation.  37 

With  the  death  of  Henry  B.  Hyde,  who  remained  an 
inspiration  to  his  agents  and  an  enormous  personal  producer 
of  insurance  to  the  very  end  of  his  lifetime,  the  struggle  for 
supremacy  went  on  unabated,  principally  between  Gage  E. 
Tarbell,  upon  whom  the  agency  mantle  of  Hyde  descended, 
and  George  W.  Perkins,  the  aggressive_agency  manager  of 
the  New  York  Life.  These  two  men  had  been  keen  rivals 
for  leadership  since  1892,  when  both  had  come  from  Chicago 
to  the  home  office  of  their  respective  companies  as  agency 
officers.  It  thus  fell  to  Tarbell's  lot  to  keep  the  Equitable  to 
the  front.  This  was  a  herculean  task,  as  the  other  big  com- 
panies had  also  capable  leaders  and  able  departmental  heads 
lending  loyal  support  to  their  respective  chiefs,  whereas  he 
suffered  in  the  frivolous  presence  of  the  younger  Hyde, 
James  Hazen  Hyde,  as  vice-president  of  the  organization. 

Tarbell  was  a  masterful  and  ambitious  man;  he  felt 
keenly  the  handicap  of  Hyde  and  resented  his  seniority  in 
office.  The  then  president  of  his  company,  James  W.  Alex- 
ander, now  out  of  life  insurance,  had  obligations  of  grateful 
association  with  the  elder  Hyde,  and  of  guardianship  to  the 
younger,  which  tied  his  hands. 

Young  Hyde  had  the  advantage  of  owning  the  control  of 
the  capital  stock  of  the  company.  He  assumed  much  author- 
ity in  the  high  office  to  which  his  father  had  elevated  him 
without  regard  to  his  lack  of  qualification.  In  the  financial 
management  of  the  company  Hyde  permitted  himself  to  be 
unduly  influenced  by  certain  high  financiers  in  the  director- 
ate. 

Thus  the  weak  spots  in  life  insurance  were  high  pressure 
for  business  on  the  one  hand,  and  high  finance  on  the  other. 

On  January  31,  1905,  young  Hyde  gave  his  now  famous 
French  ball.  It  takes  a  little  more  than  ordinary  genius  to 
startle  New  York  society,  and  the  fact  that  this  ball  so 


38  The  Romance  of  Life  Insurance. 

thoroughly  startled  it  attests  that  young  Hyde  was  not  lack- 
ing in  the  family  genius,  even  though  he  chose  to  misapply 
it.  This  garish  festival  was  blatantly  vulgarized  by  the 
press. 

Tarbell  was  quick  to  see  in  this  ball  the  possibilities  of 
bringing  about  the  desired  elimination  of  James  Hazen  Hyde 
from  the  Equitable  Life.  He  prepared  a  "  round  robin," 
signed  by  nearly  all  the  officers  of  the  company,  from  Presi- 
dent Alexander  down,  and  by  the  heads  of  the  departments, 
calling  upon  Mr.  Hyde  to  resign.  Tarbell  went  into  the 
annual  meeting  in  February  with  this  petition,  feeling  that  it 
could  not  be  denied  by  the  directors  of  the  society  when  it 
was  signed  by  men  who  owed  their  living  to  the  company. 
In  this  he  reckoned  without  the  "  high  financiers  "  of  the 
directorate,  who  did  not  propose  to  lose  the  grip  upon  the 
Equitable  which  they  had  made  serviceable  through  Mr. 
Hyde  and  the  "  James  H.  Hyde  and  Associates  "  syndicates 
which  Mr.  Hyde  was  wont  to  form  for  investing  Equitable 
money.  The  result  of  this  meeting  was  turmoil.  Hyde, 
supported  by  E.  H.  Harriman  and  his  financial  coterie, 
refused  to  resign.  Tarbell  took  up  the  challenge  to  battle, 
and  the  war  was  on. 

High  Pressure  and  High  Finance  were  now  engaged  in 
self-eliminating  strife  in  the  personalities  of  Gage  E.  Tarbell 
and  James  Hazen  Hyde.  The  different  factions  of  promi- 
nent financiers  represented  in  the  directorate  of  the  Equitable 
added  fuel  to  the  flame  in  attempts  to  further  their  personal 
and  conflicting  ambitions. 

After  months  of  struggle,  with  charges  and  counter- 
charges bandied  freely  back  and  forth;  after  the  practical 
disruption  of  the  board  of  directors  of  the  Equitable  in 
attempt  by  each  faction  to  solve  the  problem  by  the  elimina- 
tion of  the  opposing  side;  after  the  situation  had  been 


The  Aftermath  of  the  Investigation.  39 

accentuated  by  the  press  and  the  warring  factions  until  the 
public  became  thoroughly  alarmed,  and  serious  consequences 
threatened,  the  internecine  strife  was  ended  by  Hyde  selling 
his  majority  interest  in  the  capital  stock  of  the  Equitable  to 
Thomas  F.  Ryan  for  $2,500,000  and  withdrawing  from  the 
company. 

Mr.  Ryan  immediately  trusteed  the  stock  in  the  hands  of 
Grover  Cleveland,  Morgan  J.  O'Brien,  and  George  Westing- 
house.  Here  is  Mr.  Ryan's  testimony  before  the  Armstrong 
Committee  upon  the  purchase : 

My  first  idea  was  to  get  together  a  number  of  policyholders  who 
would  take  this  company  out  of  the  hands  in  which  it  was  going  to 
destruction  and  give  it  a  clean  management,  economical  and  effi- 
cient, and  restore  it  to  its  prosperity  for  the  benefit  of  all  honest 
interests.  I  soon  concluded  that  the  amounts  that  could  be  obtained 
from  disinterested  people  —  people  who  had  no  axes  to  grind  — 
would  be  very  small,  so  I  concluded  to  do  it  myself.  And  buying 
the  stock  I  determined  never  to  exercise  the  voting  power  for  the 
purpose  of  electing  directors  of  the  company  or  for  any  other  pur- 
pose, and -I  would  select  trustees  of  such  high  character  that  their 
motives  could  not  be  questioned.  I  accordingly  instructed  my  coun- 
sel to  draw  a  deed  or  transfer  of  that  power  as  strong  as  it  could 
be  made  under  the  present  law. 

As  a  matter  of  exceeding  interest  and  news  to  many,  this 
deed  of  trust  is  renewable  at  the  option  of  the  trustees  alone, 
and  is  as  nearly  perpetual  as  is  possible  under  the  laws  of 
New  York. 

Paul  Morton  was  elected  chairman  of  the  board  of  the 
Equitable,  and  afterward  president.  Mr.  Ryan  was  not  the 
original  suggester  of  Mr.  Morton  for  the  chairmanship, 
although,  as  he  put  it  recently,  "  he  wished  he  could  claim 
that  honor."  Mr.  David  H.  Moffatt,  president  of  the  First 
National  Bank,  of  Denver,  who  had  long  known  Mr.  Mor- 
ton, suggested  his  name  to  his  fellow  directors  on  the  Equit- 
able board  as  the  most  capable  executive  available. 


40  The  Romance  of  Life  Insurance. 

Inasmuch  as  succeeding  financial  flurries  and  depressions 
can  be  traced  to  the  disturbance  of  affairs  beginning  with  the 
investigation  of  the  Equitable  Life,  in  that  much  is  Ryan's 
statement  of  his  self-interest  in  protecting  his  other  invest- 
ments proven.  More  than  this,  Mr.  Ryan  has  offered  to  sell 
back  his  interests  to  the  society  for  what  he  paid  for  it,  and 
four  per  cent  interest  upon  the  same.  This  offer  stands  to 
date. 

Briefly,  this  is  the  story  of  the  squabble  which  brought 
about  the  legislative  investigation,  and  in  doing  so  has  done 
much  for  life  insurance  in  eliminating  the  parasites  from 
the  home  office  and  the  field,  and  the  self-serving  directors 
from  the  directorates.  And  the  present  home-office  manage- 
ments welcome  the  change,  and  fought  for  it. 

So  much  for  High  Finance.    Now  for  High  Pressure. 

First  commissions  and  bonuses  had  gone  high,  and  gen- 
eral agents  were  borrowing  against  their  renewal  com- 
missions, obtaining  what  is  called  agency  advances.  These 
practices  had  led,  as  shown,  to  rebating,  and  to  the  purchase 
of  business  at  excessive  cost,  and  to  incidental  extravagances. 

And  right  here  it  should  be  injected  that  it  remains  for 
some  future  economist  to  pass  upon  the  economic  features  of 
large  commissions  and  advances,  and  the  struggle  for  enor- 
mous size  now  to  be  suddenly  ended.  This  struggle  and 
stress  had  undoubtedly  popularized  life  insurance  and  had 
spread  its  benefits,  even  at  excessive  cost,  broadcast  through 
the  land.  The  future  economist  will  have  to  decide  whether 
the  years  of  slower  advancement  at  a  lower  cost,  without  the 
impetus  given  by  the  deferred  dividend  system,  would  have 
served  the  larger  economy  of  the  American  people,  when  it 
is  considered  that  it  must  have  omitted  countless  thousands 
from  insurance  benefactions. 

As  is  usually  the  case  with  American   legislation,  in 


The  Aftermath  of  the  Investigation.  41 

attempting  statutory  correction  of  life-insurance  abuses,  the 
pendulum  has  swung  too  far  the  other  way. 

It  did  not  need  either  a  prophet  or  an  economist  to 
characterize  the  extreme  restrictions  which  the  first  New 
York  reform  laws  put  upon  agency  expense  and  agency 
commissions  as  detrimental  to  the  best  interests  of  the 
American  people,  unjust  to  the  trained  agency  man  strug- 
gling for  livelihood  in  his  most  honorable  profession,  and 
disastrous  to  the  agency  organization  of  which  he  is  a  unit. 
That  this  fact  has  not  yet  fully  developed  is  due  to  reasons 
succinctly  set  forth  by  William  C.  Johnson,  who  represented 
life  insurance  in  an  attempt  to  loosen  the  present  restrictions 
on  agency  activity.  Mr.  Johnson  succeeded  in  having  such 
an  amendment  passed  unanimously  by  the  Assembly,  and 
with  but  one  opposing  vote  in  the  Senate,  only  to  be  vetoed 
by  Governor  Hughes,  after  the  Governor  had  given  a  hear- 
ing in  which  every  one  who  appeared  was  in  favor  of  the 
bill.  Mr.  Johnson  comments  : 

The  present  standard  (of  compensation  for  agents)  is  insufficient, 
viewing  the  needs  of  all  companies,  in  all  sections,  and  had  it  not 
been  for  the  existence,  when  it  took  effect,  of  organizations  of  agents 
who  had  already  been  procured  and  trained,  and  who  were  tied  to 
the  business  under  renewal  contracts  with  their  companies,  the  inad- 
equacy of  Section  97  would  have  been  appallingly  apparent  before 
this.  The  fact  that  many  agents  are  being  supported  by  renewals  on 
old  business  has  served  to  postpone  a  realization  of  its  blighting 
effect,  and  to  make  its  operation  toward  disintegration  gradual  rather 
than  immediate,  but  for  that  reason  even  the  more  dangerous  because 
not  so  clearly  discerned  by  the  inexpert. 

Of  the  special  features  brought  out  in  the  investigation, 
beyond  the  nepotism  of  some  families  in  control,  happily 
eliminated,  and  the  minor  extravagances,  the  most  prominent 
involved  matters  of  dividend  accounting,  and  syndicates  and 
joint  accounts  and  methods  of  investment. 


42  The  Romance  of  Life  Insurance. 

While  attempting  to  fix  the  investigation  and  the  turmoil 
in  life  insurance  properly  in  mind,  it  is  well  in  passing  to 
state  that  the  syndicates  and  joint  accounts,  rightly  elim- 
inated by  laws  since  enacted,  because  at  times  iniquitously 
abused  for  personal  avarice  and  ambition,  have  not  operated 
to  the  cost  of  the  policyholder,  when  considered  as  a  whole. 
It  may  be  a  surprise,  too,  to  the  public  to  know  that  the 
so-much-heralded  campaign  contribution  reduces  to  insignif- 
icant figures,  averaging  for  the  company  chiefly  blamed  in 
this  respect  since  1896,  the  date  of  the  free-silver  campaign, 
less  than  one  quarter  of  a  mill  on  each  dollar  of  premiums 
paid  during  the  twelve  presidential  years  covered  by  the 
three  donations  of  1896,  1900  and  1904. 

The  conclusion  which  the  insurance  investigation  forces 
on  any  thoughtful  mind  is  the  innate  soundness  of  life  insur- 
ance. In  contrast  the  best  banks  are  feeble. 

During  the  money  panic  of  the  fall  of  1907,  the  very  laws 
of  the  State  and  nation  were  waived  aside  that  the  banks  be 
not  embarrassed  by  the  rightful  demand  of  depositors  for 
their  money.  This  sentiment  of  refusing  money  to  deposi- 
tors with  checking  accounts  in  banking  institutions  was  sup- 
ported by  the  sound  judgment  of  the  American  people,  and 
justified  by  the  same  sensational  press  that  had  found  so 
much  to  condemn  in  life  insurance. 

The  probe  into  life  insurance  was  a  probe  at  the  same 
time  into  the  weak  points  of  a  country's  commercial  morals. 
It  is  fortunate  for  the  country  that  it  was  life  insurance  that 
was  put  to  the  test.  No  other  financial  institution  in  Amer- 
ican affairs  could  have  withstood  investigation  of  this  icon- 
oclastic character.  The  rebate,  the  yellow  dog,  the  cam- 
paign fund,  the  manipulation  of  high  finance,  had  relatively 
their  minimum  of  evil  existence  in  life-insurance  circles. 

When  there  is  so  much  about  the  constructive  work  of 


The  Aftermath  of  the  Investigation.  43 

life  insurance  to  tell  —  how  to  use  it,  and  how  to  make  it 
useful  —  the  space  used  in  the  rehearsing  of  this  insurance 
investigation  is  begrudged,  except  in  the  sense  that  it  chron- 
icles an  epoch-marking  period  in  life-insurance  affairs  and 
prepares  the  way  for  telling  the  great  constructive  story  — 
the  story  of  how  life  insurance  can  serve  you. 


CHAPTER   IV. 
THE  EVOLUTION  OF  THE  POLICY. 

THE  story  of  the  evolution  of  the  policy  as  usually  told 
runs  back  into  antiquity.  Many  will  recall  the  famous 
analogy  which  Dr.  Talmage  drew  between  life  insurance  and 
the  biblical  episode  of  Joseph,  anticipating  in  the  seven  years 
of  plenty  the  needs  of  seven  succeeding  years  of  famine. 
Other  oracular  authorities,  fixing  on  the  cooperative  prin- 
ciple of  life  insurance,  have  pointed  out  its  ancient  parallels 
in  the  communistic  care  of  its  own,  of  the  tribe,  the  band, 
the  horde  and  the  clan.  No  end  of  similar  illustrations 
might  be  instanced.  All  life  insurance  reduces  to  the  one 
element  —  protection  —  and  beyond  doubt  this  element  has 
been  present  in  the  heart  of  man  for  his  own  and  for  himself 
so  far  as  the  history  of  man  is  traceable. 

It  is  doubtful  if  these  researches,  well  intentioned  to  sur- 
round life  insurance  with  a  lofty  mist  of  idealism  and  a 
vaporous  incense  of  orthodoxy,  are  as  beneficial  to  the  public 
as  the  less  sententious  efforts  of  the  analytical  historian  to 
dissipate  the  fog  gratuitously  surrounding  life  insurance, 
and  leave  it  bare  as  truth  itself. 

Life  insurance  is  a  business,  and  not  a  philanthropy.  As 
an  equalizer  it  accomplishes  what  philanthropy  has  ever 
failed  to  achieve,  the  beneficence  without  the  sting,  and  as  a 
distributor  of  wealth  it  takes  from  philanthropy  much  of  its 
excuse  for  existence. 

As  a  business,  life  insurance  had  an  unsavory  beginning. 
Without  mortality  tables  or  mathematical  principles  for 

44 


WENDELL  PHILLIPS,  distinguished  citizen  of  Boston, 
who  in  1835  procured  for  the  New  England  Mutual  Life 
the  first  charter  for  doing  a  general  life-insurance  business 
granted  in  the  United  States. 


ch  Dr.  Talmage 

le  of  Joseph,  antici{ 


• 
illusjtrat 


i  bush 
Without   moi 


'  an 

uch  of  its 


i 


WENDELL  PHILLIPS. 


The  Evolution  of  the  Policy.  47 

basis,  the  earliest  insurance  upon  lives  was  indefensible 
gambling.  Hazards  introduced  by  death  were  classed  with 
hazards  or  risk  brought  about  in  any  other  way.  Speaking 
of  those  early  days  in  insurance,  one  hundred  and  fifty  years 
ago,  a  high  British  authority  said : 

We  should  simply  subject  ourselves  to  the  charge  of  romancing 
if  we  were,  thus  early,  to  rend  aside  the  veil  of  a  century  and  assert 
the  existence  of  companies  for  insuring  against  housebreakers  and 
highwaymen  —  against  lying,  or  death  by  drinking  Geneva !  Yet 
the  climax  of  that  period  —  the  era  of  the  South  Sea  bubble  — was 
only  reached  by  a  scheme  in  "  Change-alley  for  the  insurance  of 
female  chastity,  and  another  against  divorces."  A  little  later  these 
outrages  degenerated  into  "  little  goes "  and  "  insurance  wagers." 
Then,  as  a  popular  writer  has  observed,  any  public  event  would  do 
for  a  venture.  Wilkes  in  the  Tower,  Lord  North  in  disgrace  with 
the  people,  were  scheduled  in  broker's  books  as  good  subjects.  Suc- 
cesses or  disasters  in  war,  the  seals  of  a  prime  minister,  or  the  life 
of  a  highwayman  —  all  served  the  purpose  of  the  policy-mongers,  if 
by  them  they  "  put  money  in  their  purse."  Large  sums  were  paid  by 
the  underwriters  at  Lloyd's,  who  speculated  upon  the  failure  of  a 
young  fellow  who  had  undertaken,  for  a  wager,  to  go  to  Lapland  and 
bring  back  within  a  given  time  two  reindeer  and  two  Lapland 
females  —  and  did  it! 

The  picturesque  operations  of  the  London  Lloyds  of 
to-day  are  in  instances  not  greatly  unlike  the  reference  in  the 
last  paragraph,  although,  of  course,  the  transactions  now 
undertaken  by  Lloyds  are,  for  business  reasons  alone,  of 
greatly  improved  moral  tone.  Lloyd's  operations  are  worthy 
of  brief  description,  especially  since  the  interest  in  this 
unique  organization  seems  to  exceed  the  amount  of  current 
information. 

Edward  Lloyd  kept  a  coffee-house  in  Tower  street, 
London,  and  it  is  his  name  that  has  been  adopted  to  char- 
acterize the  peculiar  business  of  this  organization,  though  it 
appears  Lloyd  at  no  time  was  a  participant  in  the  various 


48  The  Romance  of  Life  Insurance. 

underwriting  schemes  that  originated  in  his  tavern.  The 
taverns  of  those  seventeenth-century  days  were  patronized 
by  business  men  as  meeting-places.  Lloyd's  place  became 
particularly  popular  with  owners  of  vessels  and  shippers  of 
goods,  as  a  mart  at  which  they  could  offer  risks  to  ship  a 
cargo  and  obtain  underwriters  willing  to  assume  the  risk  for 
stipulated  payments.  It  is  related  that  the  place  also 
achieved  vogue  as  an  auction  house  for  ships. 

The  underwriters  who  frequented  Lloyd's  were  not 
bound  together  by  any  organization  until  the  year  1775,  after 
Lloyd  had  long  been  dead,  but  the  organization  was  per- 
petuated under  his  name,  and  took  up  permanent  quarters  in 
the  Royal  Exchange. 

While  life  insurance  has  evolved  into  a  science  approach- 
ing mathematical  exactness,  operating  to  eliminate  the  uncer- 
tain hazard  of  the  individual  by  associating  it  with  the 
certain  average  of  the  group,  and  therefore  the  exact  anti- 
thesis of  gambling,  Lloyd's  remains  an  underwriter  of  queer 
risks  with  large  speculative  elements,  where  the  rates  must 
continue  to  be  a  product  of  guesswork.  Marine  insurance, 
which  it  chiefly  covers,  can  not,  in  the  absence  of  reliable 
risk  tables,  be  rated  like  life  insurance  on  mathematical 
principles. 

Lloyd's  brokers  have  issued  insurance  contracts  on  the 
lives  of  most,  if  not  all,  the  monarchs  of  Europe  since  the 
time  of  Napoleon,  to  indemnify  those  whose  interest  would 
be  affected  one  way  or  the  other  by  the  death  of  the  rulers 
insured.  In  this  respect  Lloyd's  may  appear  to  invade  the 
field  of  life  insurance,  which,  however,  is  not  the  case,  as  life 
insurance  is  only  issued  upon  evidence  of  insurability  and 
insurable  interest  not  possible  to  establish  in  the  class  of 
insurance  underwritten  at  the  London  Lloyds. 

The  early  days  in  insurance  were  truly  gambling  days,  as 


The  Evolution  of  the  Policy.  49 

characterized   in  the   following  excerpt   from   the  London 
Chronicle  of  1768: 

The  introduction  and  amazing  progress  of  illicit  gaming  at 
Lloyd's  Coffee-house  is,  among  others,  a  powerful  and  very  melan- 
choly proof  of  the  degeneracy  of  the  time.  Though  gaming  in  any 
degree  is  perverting  the  original  and  useful  design  of  that  coffee- 
house, it  may  in  some  measure  be  excusable  to  speculate  on  the  fol- 
lowing subjects:  Mr.  Wilkes  being  elected  member  for  London; 
which  was  done  from  5  to  50  guineas  per  cent;  Mr.  Wilkes  being 
elected  member  for  Middlesex,  from  20  to  70  guineas  per  cent; 
Alderman  Bond's  life  for  one  year,  now  doing  at  7  per  cent;  on 
Sir  J.  H.  (mark  the  modesty!)  being  turned  out  in  one  year,  now 
doing  at  12  guineas  per  cent;  on  John  Wilkes'  life  for  one  year, 
now  doing  at  5  per  cent  (N.  B.  Warranted  to  remain  in  prison 
for  that  period)  ;  on  a  declaration  of  war  with  France  or  Spain  in 
one  year,  8  guineas  per  cent.  But,  when  policies  come  to  be  opened 
on  two  of  the  first  peers  in  Britain  losing  their  heads  at  IDS.  6d.  per 
cent,  or  on  the  dissolution  of  the  present  parliament  within  one 
year  at  5  guineas  per  cent,  which  are  now  actually  doing,  and  under- 
written chiefly  by  Scotsmen,  at  the  above  coffee-house,  it  is  surely 
high  time  to  interfere. 

This  gambling  spirit  was  finally  crushed  by  the  gambling 
act  passed  during  the  reign  of  George  the  Third,  which 
enacted  that  an  insurable  interest  must  be  present  in  all 
insurance  upon  lives. 

The  real  beginning  of  scientific  life  insurance  dates  from 
the  formation  of  the  Equitable  Society  in  London  in  1762. 
This  company  is  the  one  familiarly  termed  the  "  Old  Equit- 
able "  and  is  not  to  be  confused  with  the  Equitable  Life 
Assurance  Society  founded  in  America  a  century  later  by 
Henry  B.  Hyde. 

In  the  absence  of  trustworthy  mortality  tables,  gross 
miscalculations  were  made  at  first  in  fixing  premium  rates. 
The  Old  Equitable  owes  its  survival  to  the  fact  that  its  errors 
balanced  on  the  safe  side.  The  "  Insurance  Guide  and  Hand 


50  The  Romance  of  Life  Insurance. 

Book  "  shows  annuity  rates  now  quoted  at  fifteen  thousand 
pounds  to  have  been  offered  in  those  days  for  six  hundred 
and  seventy-five  pounds.  Though  annuities  antedate  life 
insurance,  it  appears  that  the  Old  Equitable's  business  was 
so  distributed  that  it  had  more  than  a  corresponding  offset  to 
the  inadequacy  of  annuity  rates  in  the  premiums  fixed  for 
life  insurance,  which  were  fully  fifty  per  cent  in  excess  of 
necessity.  A  premium  of  five  per  cent  of  the  sum  insured 
was  required  on  lives  between  the  ages  of  twelve  and  forty- 
five.  This  was  at  the  excessive  premium  rate  of  fifty  dollars 
a  thousand  for  one  year's  insurance. 

The  Old  Equitable  had  for  its  actuary  a  scholarly  mathe- 
matician named  Morgan,  working  in  association  with  his 
father-in-law,  Dr.  Price,  who  compiled  from  the  vital  sta- 
tistics of  the  town  of  Northampton  the  now  famous 
Northampton  Mortality  Table.  Dr.  Price  later  produced  a 
second  mortality  table  in  1783,  which  was  promptly  utilized 
by  the  Equitable  and  is  at  the  present  time  a  standard  in  the 
courts  of  New  York  and  certain  other  States  for  fixing 
values  involving  impaired  lives,  annuity  interest,  dowers  and 
similar  contingencies. 

With  the  mortality  tables  and  information  deduced  from 
Dr.  Price's  investigations,  the  Old  Equitable  prepared  rates 
and  fathered  the  great  business  of  scientific  life  insurance, 
adopting  with  readiness  all  that  science  could  uncover  in 
those  days,  to  advance  both  the  theory  and  practice  of  life 
insurance  in  the  United  Kingdom. 

Naturally,  the  company  produced  imitators.  Many  of  the 
imitators  were  short-lived,  while  others  persisted,  adopted 
modern  soliciting  methods,  and  outstripped  the  originator. 

The  Old  Equitable  has  performed  two  heroic  services  for 
life  insurance :  first,  the  adoption  and  advocacy  of  scientific 
insurance  principles  that  in  the  continuance  of  this  institu- 


The  Evolution  of  the  Policy.  51 

tion  bespeak  the  inherent  soundness  of  correct  life  insurance ; 
secondly,  by  its  petty  proportions  resultant  upon  its  refusal 
to  employ  agents,  the  company  serves  to  emphasize  the  need 
of  the  well-trained  and  properly  compensated  solicitor  for 
successful  propagation  of  life  insurance.  Without  the  agent 
the  Equitable,  with  its  long  and  honorable  history,  has  been 
able  to  serve  but  a  small  portion  of  the  public,  having  on  its 
books  to-day  but  $12,500,000  insurance  as  its  total  volume  in 
force.  With  an  average  issue  of  less  than  six  hundred  poli- 
cies during  the  last  several  years  the  company  in  1907 
insured  only  262  new  risks. 

The  spread  of  life  insurance  throughout  the  civilized 
world  naturally  followed  its  successful  operation  in  England. 
The  enormous  proportions  of  life  insurance  in  America  is 
not  the  result  of  early  transplantation  of  the  insurance  idea, 
but  of  its  healthier  and  more  energetic  growth  when  once 
introduced.  The  oldest  life-insurance  company  in  America 
is  the  Presbyterian  Ministers'  Fund,  founded  in  1759.  This 
corporation  has  for  the  greater  part  of  its  existence  been  but 
a  small  body,  limited  to  insuring  ministers,  mostly  of  the 
Presbyterian  faith,  and  is  not  usually  classed  with  the  com- 
panies doing  a  general  life-insurance  business. 

The  first  life-insurance  company  to  begin  general  life- 
insurance  operations  in  America  was  the  Mutual  Life  Insur- 
ance Company  of  New  York,  which  commenced  business 
February  i,  1843. 

Willard  Phillips,  of  Boston,  had,  prior  to  this  time, 
obtained  a  charter  —  the  first  life-insurance  charter  —  for 
the  New  England  Mutual  Life  Insurance  Company,  under 
date  of  April  I,  1835.  Owing  to  the  hard  times  of  1836  and 
subsequent  years,  Mr.  Phillips  did  not  perfect  the  organiza- 
tion or  begin  business  until  April  i,  1843. 

The  New  York  Life  was  chartered  as  a  marine,  inland 


52  The  Romance  of  Life  Insurance. 

navigation,  transportation  and  fire  insurance  company, 
on  May  21,  1841,  under  the  name  *'  Nautilus  Insurance 
Company."  The  company  changed  its  name  in  1842  to  the 
New  York  Mutual  Insurance  Company,  obtaining  a  new 
charter  granting  the  privilege  to  do  a  life-insurance  business. 
From  April  17,  1845, tne  New  York  Life  limited  its  business 
entirely  to  life  insurance. 

State  supervision  was  not  in  vogue  at  that  time,  and 
indeed  not  contemplated.  There  were  no  accepted  standards 
of  life  insurance,  nor  had  the  present  net-valuation  or  legal- 
reserve  system  been  thought  of,  either  in  America  or  Eng- 
land. Consequently  the  status  of  life  insurance  was  not 
fixed  either  as  to  breadth  or  scope  or  limit  of  solvency. 

The  New  York  Life  issued  its  first  life-insurance  policy 
in  connection  with  two  fire-insurance  contracts  granted  by 
the  company.  Another  interesting  case  illustrating  the 
experimental  trend  in  life  insurance  and  its  uncertain  scope, 
is  the  insurance  on  the  lives  of  seven  hundred  coolies  under 
one  policy  issued  by  the  New  England  Mutual  to  indemnify 
the  shipper  in  event  of  the  death  of  the  coolies  in  passage 
from  China  to  Panama,  at  the  rate  of  fifteen  dollars  a  coolie. 
The  policy  as  afterward  written  changed  this  amount  to 
fourteen  and  seven-twelfths  dollars  each,  in  order  to  include 
seven  hundred  and  twenty  coolies,  without  increasing  the 
total  amount  at  risk.  This  unique  contract  recited  that  the 
risk  would  continue  until  twenty-four  hours  after  the  ship 
Sea  Witch  had  successfully  completed  the  journey  from 
China  and  was  safely  moored  at  Panama. 

The  Manhattan  Life  Insurance  Company,  one  of  the 
several  companies  which  had  in  the  meantime  commenced 
business,  also  carried  a  similar  risk  on  these  coolies  during 
the  same  voyage. 

Without   the   light   of   experience   to   guide   American 


The  Evolution  of  the  Policy.  53 

experimenters  in  life  insurance,  the  policy  was  restricted  in 
every  conceivable  way.  It  became  absolutely  forfeited  in 
event  of  nonpayment  of  premium  on  the  date  when  due,  and 
otherwise  bears  but  slight  resemblance  to  the  modern  life- 
insurance  policy.  The  first  policy  issued  by  the  New  Eng- 
land Mutual  Life  provided  for  an  addition  to  the  premium 
rate  in  event  the  insured  removed  to  the  city  of  Washington, 
or  any  town  or  city  containing  50,000  inhabitants,  the 
increase  to  be  determined  by  the  directors,  and  not  to  exceed 
fifty  per  cent.  This  contract  became  null  and  void  if  the 
insured  died  upon  seas,  or,  without  consent  of  the  company, 
"  traveled  beyond  the  limits  of  the  United  States,  excepting 
certain  portions  of  the  British  Provinces,  New  Brunswick, 
Nova  Scotia  and  Canada,  or  go  and  remain  for  one  month 
or  more,  between  the  first  of  May  and  last  of  October,  south 
of  the  southern  boundary  of  Virginia  and  Kentucky,  or 
west  of  the  Mississippi."  Since  this  first  policy  was  issued 
on  a  resident  of  Boston,  a  city  of  more  than  50,000  inhabit- 
ants, an  extra  premium  of  $5  was  charged.  All  premiums 
were  forfeited  and  the  contract  was  further  null  and  void  in 
event  the  insured  entered  into  active  military  or  naval  serv- 
ice, committed  suicide,  or  died  as  the  consequence  of  a  duel, 
or  at  the  hands  of  justice,  or  in  attempted  violation  of  the 
law. 

Every  statement  in  these  early  policies  was  made  a  war- 
ranty, specifically  providing,  "  if  untrue  in  any  respect " 
the  policy  should  be  forfeited.  Limitations  and  extra  pre- 
mium provisions  naturally  resulted  in  making  the  contract 
lengthy  and  complicated,  a  tendency  that  grew  much  worse 
before  it  grew  better,  through  the  inclination  of  the  com- 
panies' attorneys  to  inject  stipulations  and  conditions  when- 
ever a  court  decision  was  registered  against  the  company,  to 
hedge  against  recurrence. 


54  The  Romance  of  Life  Insurance. 

At  this  time  a  life-insurance  policy  was  a  cumbrous, 
clumsy  contract,  absolutely  forfeited  in  event  of  nonpayment 
of  premium  on  date  when  due,  devoid  of  provisions  for  sur- 
render value  of  any  character  whatsoever,  restricted  as  to 
residence,  occupation  and  travel.  Rigidly  warranted  as  to 
the  truth  of  its  statements,  a  misstatement  without  regard  to 
its  materiality  could  be  made  a  subject  for  contest.  Claims 
were  established  by  tedious  process,  and  in  no  case  paid 
before  the  expiration  of  thirty,  sixty  or  ninety  days  after 
duly  approved  and  accepted,  and  without  other  options  of 
settlement  than  the  payment  to  the  beneficiary  in  one  sum. 
Death  from  suicide  or  inebriacy,  without  regard  to  the  dura- 
tion of  the  policy  or  the  condition  of  sanity  of  the  individual, 
commonly  brought  about  complete  forfeiture. 

These  conditions  substantially  held  with  all  insurance 
contracts,  with  the  possible  exception  of  those  policies 
granted  ministers  in  the  Presbyterian  Ministers'  Fund, 
where  so  far  back  as  1792  the  Board  of  Directors  had  passed 
resolutions  mitigating  the  harshness  of  absolute  forfeiture, 
but  such  provisions  were  not  incorporated  in  even  the 
Presbyterian  Ministers'  Fund  contract  until  September  3, 
1856. 

The  equity  of  a  retiring  member  in  the  reserve  against 
his  contract  was  recognized  in  different  ways  by  other  com- 
panies between  that  date  and  1861,  when  the  then  insurance 
commissioner  of  Massachusetts,  Elizur  Wright,  succeeded  in 
having  the  first  nonforfeiture  law  passed  by  the  Legislature 
of  that  State.  The  Massachusetts  law  provided  for  a  sur- 
render value  in  the  form  of  extended  insurance,  so  that  in 
event  of  the  death  of  the  insured  occurring  while  the  insur- 
ance was  being  continued  temporarily  without  payment  of 
premiums,  in  accordance  with  the  surrender  law,  the  claim 
would  be  paid,  but  the  company  could  deduct  the  amount  of 


The  Evolution  of  the  Policy.  55 

unpaid  premiums  at  the  time  of  death,  with  interest  thereon 
at  six  per  cent  per  annum. 

At  the  Life  Underwriters'  Convention  in  1860  an 
extended  discussion  on  the  subject  of  nonforfeiture  policies 
elicited  the  fact  that  every  life-insurance  company  in  the 
United  States,  with  one  exception,  paid  surrender  values 
either  in  cash  or  paid-up  insurance  after  about  the  fifth  year, 
provided  the  contracts  were  surrendered  before  lapse,  and  in 
some  cases  these  values  were  available  after  lapse,  but  none 
of  the  companies  contracted  to  pay  these  values  in  the  policy. 

The  first  nonforfeiture  clause  embodied  in  the  contract  of 
a  life-insurance  company  doing  a  general  life-insurance  busi- 
ness appeared  in  New  York  Life  policies  of  1860,  eight 
months  prior  to  the  enactment  of  the  Massachusetts  Non- 
forfeiture Law.  This  surrender  value  was  in  the  form  of 
"  proportionate  parts,"  the  size  of  the  paid-up  policy  being 
proportionate  to  the  number  of  premiums  paid. 

The  first  provision  for  cash  surrender  value  appeared  in 
1869.  The  Equitable  Life,  the  company  making  this  innova- 
tion, came  to  the  conclusion  nine  years  later,  in  1878,  that  it 
was  unwise  to  offer  facilities  for  obtaining  cash  in  surrender 
of  a  life-insurance  policy,  and  removed  this  option  from  the 
policy,  amending  its  contracts  to  allow  only  paid-up  insur- 
ance in  event  of  surrender.  The  reason  for  retraction  was 
the  same  as  that  put  forth  by  the  companies  which  had 
refused  to  adopt  cash  surrender  values,  in  the  statement  that 
the  company  "was  selling  insurance,  and  not  buying  it," 
and  that  it  was  prejudicial  to  beneficiaries  to  offer  cash 
temptations  to  surrender  insurance  protection. 

Then  the  Equitable  insurance  policy  definitely  granted  a 
paid-up  policy  for  the  amount  that  the  legal  reserve  of  the 
contract  would  purchase  at  the  time  of  default,  when  applied 
upon  the  company's  published  rates  for  paid-up  insurance. 


56  The  Romance  of  Life  Insurance. 

Shortly  afterward,  an  almost  identical  surrender-value  pro- 
vision was  adopted  by  the  State  of  New  York.  Both  the 
Equitable  Life  Assurance  Society  of  New  York  and  the 
Maryland  Life  Insurance  Company  of  Baltimore  have 
pointed  out  the  similarity  of  this  New  York  law,  which 
limited  statutory  surrender  values  to  paid-up  insurance 
alone,  to  the  clauses  incorporated  in  their  policy.  This 
similarity  seems,  however,  to  be  an  effect  and  not  a  cause, 
the  cause  being  that  surrender  values  in  the  form  of  paid-up 
insurance  alone  reflected  sound  actuarial  thought  of  the  day. 

Extended  insurance  as  a  surrender  value,  like  all  other 
liberalities  first  conceived  by  the  companies  and  afterward 
developed  by  them,  was  approached  testily  in  fear  of 
unfavorable  selection  against  the  company.  This  provision, 
accurately  described  by  its  name,  allows  as  a  surrender  value 
the  continuation  of  the  contract  in  full,  less  any  outstanding 
indebtedness,  for  a  certain  number  of  years  and  days  with- 
out the  payment  of  premiums  thereon,  the  length  of  exten- 
sion being  determined  with  reference  to  the  amount  of 
reserve  credited  to  the  contract. 

Policy  loans  secured  against  the  cash  surrender  values 
of  the  contract  followed  the  more  general  adoption  of  cash 
values,  and  were,  like  the  extended  insurance  provisions, 
greatly  deprecated  by  many  on  the  theory  that  loans  would 
tend  to  promote  lapses.  Col.  Jacob  Green,  late  president  of 
the  Connecticut  Mutual,  remembered  for  a  lifetime  spent  in 
untiring  attacks  upon  the  deferred  or  tontine  dividend  sys- 
tem, was  a  bitter  opponent  of  the  policy-loan  idea. 

The  late  Bloomfield  Miller,  who  as  actuary  of  the  Mutual 
Benefit  Life  Insurance  Company  did  much  to  evolve  the 
modern  life-insurance  policy,  ably  stated  what  may  be  said 
to  be  the  case  of  the  liberal  school  in  contradistinction  to 


The  Evolution  of  the  Policy.  57 

what  may  be  called  the  ultraconservative  class,  represented 
by  Colonel  Green : 

Gentlemen,  your  theories  are  excellent.  There  is  undoubtedly 
room  for  abuse  in  cash  surrender  values  and  extended  insurance, 
and  there  can  be  no  dispute  that  our  first  duty  is  security  to  the 
policyholder,  protection  to  the  beneficiary,  to  encourage  persistence 
and  see  that  the  individual  termination  is  not  at  expense  or  detri- 
ment to  the  remaining  membership.  By  tentative  experiment  and 
close  observation  we  find  ourselves  able  to  accommodate  many 
policyholders  in  payment  of  premiums  through  policy  loans,  and 
serve  them  in  the  legitimate  uses  of  the  various  surrender  privileges 
without  suffering  increased  lapsation  or  adverse  selection  to  an 
appreciable  extent. 

Incontestable  clauses  give  extreme  illustration  of  the 
conflict  between  different  schools  of  insurance  managers,  all 
honestly  striving  to  furnish  the  most  liberal  policy  consistent 
with  the  best  interests  of  policyholders.  After  effort  to 
simplify  a  contract  full  of  restrictions  and  limitations,  with 
warranties  that  permitted  contest  over  the  most  trivial  and 
immaterial  misstatements,  the  companies  resorted  to  incon- 
testable clauses  to  afford  larger  security  to  persisting  policy- 
holders. 

One  large  company  wrote,  for  several  years,  a  contract 
incontestable  from  date.  Most  of  the  other  companies  have 
adopted  incontestable  clauses  operative  after  one  or  two 
years,  and  some  few  longer.  The  company  writing  policies 
immediately  incontestable  contended  that  this  liberality  to 
the  vast  army  of  well-intentioned  applicants  more  than  off- 
sets the  extra  loss  necessarily  induced  by  the  choice  of  this 
contract  by  prospective  suicides.  A  recent  ruling  of  this 
company  not  to  issue  a  policy  incontestable  from  date  for 
a  larger  sum  than  $100,000,  has  been  followed  later,  in  1909, 
with  the  complete  withdrawal  of  the  clause  achieving  imme- 


58  The  Romance  of  Life  Insurance. 

diate  incontestability  and  its  replacement  in  a  clause  making 
the  contract  incontestable  after  one  year. 

Adoption  of  noncontestable  limits  naturally  assisted  in 
removing  other  restrictions,  since  no  restrictions  except  con- 
tract stipulations  for  extra  premiums  in  certain  events  could 
operate  beyond  the  time  of  contestability.  Intercourse  made 
possible  by  modern  transportation  facilities  and  the  improve- 
ments everywhere  in  hygiene  and  sanitation  have  resulted  in 
practically  removing  restrictions  as  to  travel.  Dueling  has 
happily  been  eliminated,  as  have  "  Indian  massacres  "  and 
other  hazards  of  our  pioneer  epoch.  Residence  in  the  large 
cities  is,  of  course,  in  no  way  penalized.  Occupation  and 
military  and  naval  service  many  companies  leave  absolutely 
unrestricted,  assuming  the  responsibility  of  determining 
whether  the  applicant  is  intending  to  increase  the  hazard  by 
change  of  occupation  or  residence,  at  the  time  the  risk  is 
offered. 

Payment  of  claims  immediately  upon  receipt  of  satis- 
factory proofs  is  the  order  of  the  day,  though  so  late  as 
1 88 1  not  a  company  in  America  paid  before  thirty,  sixty  or 
ninety  days.  Later,  the  insured  was  offered  the  option  of 
either  having  the  claim  paid  in  cash,  or  one  lump  sum,  or 
having  the  amount  paid  to  beneficiaries  in  instalments  run- 
ning ten,  fifteen  or  twenty  years,  increased  in  amount  by  an 
assumed  interest  rate.  Next,  the  privilege  was  added  of 
having  definite  payment  made  to  a  beneficiary  during  a  defin- 
ite number  of  years  and  appending  a  "  continuous  clause  " 
providing  in  event  the  nominated  beneficiary  survived  the 
definite  instalment  period,  usually  twenty  years,  that  the  pay- 
ments would  continue  thereafter  so  long  as  the  beneficiary 
lived. 

The  life-insurance  policy  of  to-day  is  a  product  of  com- 
petition and  of  endeavor  to  serve  the  policyholder  in  every 


The  Evolution  of  the  Policy,,  59 

way  that  does  not  endanger  the  primary  protection.  The 
modernizing  innovations  would  have  been  impossible  with- 
out the  genius  of  the  actuary  and  others  attracted  to  life 
insurance;  without  the  knowledge  which  their  genius 
evolved  from  their  experience;  and  above  all  without  the 
tedious  process  of  extending  the  experimental  hand  as  far 
but  no  farther  than  it  could  with  safety  be  withdrawn. 

Every  liberality  in  life  insurance  is  a  result  of  scientific 
experiment  tried  tentatively  by  one  or  more  of  the  various 
life-insurance  companies  and  embodied  wherever  and  when- 
ever it  was  deemed  safe.  Credit  is  due  practically  every 
older  life-insurance  company  for  major  innovations  and  to 
many  of  the  younger  ones  for  minor  improvements.  By  the 
very  nature  of  the  business  no  legislature,  in  the  absence  of 
skill  to  originate,  and  facility  and  ability  to  experiment  with- 
out disaster,  could  have  or  dared  have  introduced  the 
liberalizations  or  have  lifted  the  restrictions  that  have 
evolved  the  life-insurance  contract  to  its  present-day  useful- 
ness. 

David  Parks  Fackler,  the  veteran  consulting  actuary 
whose  half  century  of  professional  service  has  covered  the 
epoch  of  American  life-insurance  evolution,  concludes  that 
legislation  has  retarded  and  not  advanced  the  cause.  He 
says: 

Legislative  intermeddling  in  this  country  has  kept  our  companies 
from  developing  as  freely  as  in  England,  and  in  some  cases  has 
injuriously  affected  the  interests  of  the  policyholders ;  thus,  when 
the  New  York  Legislature  in  1879  passed  the  present  nonforfeiture 
law,  it  actually  had  the  effect  of  reducing  the  paid-up  policies  given 
by  some  of  the  companies,  because  under  the  color  of  obeying  the 
law  they  were  able  to  give  less  paid-up  insurance  than  they  had 
previously  felt  compelled  to  give  under  the  influence  of  competition. 

In  England  the  fiction  that  all  laws  come  from  the  sovereign 
has  made  people  more  jealous  for  personal  liberty  than  here,  where 


60  The  Romance  of  Life  Insurance. 

the  power  is  supposed  to  come  from  the  people;  consequently  in 
some  respects  the  liberty  of  the  "subject"  in  England  is  less 
restricted  than  the  freedom  of  the  citizen  in  the  republic. 

This  statement  made  before  the  passage  of  the  new  Arm- 
strong insurance  laws  of  New  York  is  singularly  confirmed 
by  those  laws.  The  New  York  "  standard  policy "  law, 
happily  repealed  in  1909,  served  to  limit  freedom  of  con- 
tract without  improving  the  policy. 

It  can  scarcely  be  claimed  that  annual  distributions  of 
surplus  called  for  by  the  New  York  standard  policy  and 
the  standard  dividend  clauses  of  the  Western  States  are  the 
advanced  evolution  of  the  dividend  idea,  or  that  this  is  a 
legislative  innovation.  Many  companies  have  never  departed 
from  the  annual-dividend  plan ;  in  fact,  the  tontine,  or  de- 
ferred-dividend principle  which  came  into  general  disrepute 
during  the  insurance  investigation  was  itself  an  evolution, 
replacing,  with  many  companies,  a  plan  of  short-term  dis- 
tribution, usually  once  in  five  years  and  often  less. 

The  evolution  of  the  policy  is  perhaps  the  best  evidence 
available,  and  surely  none  could  be  more  convincing,  of  the 
value  in  American  affairs  of  healthy  competition  and  Anglo- 
Saxon  individualism.  The  policy  of  to-day  is  a  much  better 
contract  than  the  one  sold  our  fathers,  and  immensely  better 
than  the  early  ones  of  grandfather  days.  If  insurance  has 
not  cheapened  in  price,  it  has  achieved  the  other  factor  in 
supplying  value  received  by  increasing  in  benefits. 

Evolved  from  a  tendency  of  gamblers  to  speculate,  the 
life-insurance  policy  has  achieved  its  modern  usefulness  in 
protecting  the  individual  from  the  speculative  uncertainties 
of  human  life.  Compared  with  the  insurance  gamblers  of 
the  eighteenth  century,  who  risked  their  gold  for  gamblers' 
spoils,  the  modern  gambler  who  gambles  the  future  of  his 
dependents  for  the  petty  premium  he  retains  in  his  own 


The  Evolution  of  the  Policy.  61 

pocket  is  immensely  the  greater  plunger  and  more  desperate 
gambler. 

The  changes  of  one  hundred  and  fifty  years  are  forcibly 
brought  out  by  contrasting  the  excerpt  quoted  from  the  Lon- 
don Chronicle  in  1758  with  the  following  recent  comments 
of  the  Sunday-School  Times: 

Death  is  not  a  matter  of  chance,  but  a  certainty ;  therefore,  one 
who  may  be  called  upon  to  meet  that  certainty  ahead  of  his  depend- 
ent wife  and  children  has  no  more  right  to  ignore  their  future 
dependence.  That  which  is  needed,  or  likely  to  be  needed,  and 
which  we  can  provide,  God  would  have  us  provide.  Life  insurance 
is  one  way  of  meeting  such  need,  and  is  a  blessing  that  would  seem 
to  have  God's  abundant  approval. 

The  last  word  in  the  Evolution  of  the  Policy  is  that  in 
its  beginning  the  gambler  was  the  man  who  took  it,  and  that 
now  the  gambler  is  the  man  who  refuses  it. 


CHAPTER   V. 
YOU:    HOW  LIFE  INSURANCE  CAN  SERVE  YOU. 

WHEN  Bobby  Burns  lay  dying  he  picked  up  that  pen 
with  which  he  was  wont  to  stir  the  human  heart  to 
deepest  tenderness,  and  with  palsied  hand  he  scribbled  a  few 
lines  which  deserve  to  endure  with  the  best  of  his  work.    He 
wrote  to  the  friend  of  his  bosom : 

Alas,  Clark,  I  begin  to  fear  the  worse :  my  poor  wife  a  widow 
and  her  six  little  ones  helpless  orphans ;  and  I  as  weak  as  a  woman's 
tear.  But  enough  of  this.  It  is  half  my  disease. 

Robert  Burns  needed  life  insurance.  Recognizing  the 
necessities  of  his  dependents  when  "  weak  as  a  woman's 
tear,"  his  condition  was  the  more  pitiful  because  antedating 
the  life.-insurace  era. 

Yet  thousands  of  similar  cases  occur  to-day,  despite  the 
facilities  life  insurance  affords  for  avoiding  this  direful  con- 
tingency. In  such  cases  the  husband's  thought  of  the  penni- 
less widow,  the  father's  vision  of  outcast  orphans,  the  busi- 
ness man's  nightmare  of  crumbling  credits,  must  be  that 
"  half  the  disease  "  of  the  lamented  Scotch  poet,  and  in  addi- 
tion the  fraction  representing  neglected  opportunity. 

There  is  no  excuse  for  life-insurance  ignorance.  Law 
imposes  its  penalties  alike  on  the  knowing  and  unknowing 
offender,  assuming  it  every  man's  duty  to  know  the  codes 
enacted  to  protect  him  and  his  neighbors  in  life,  property, 
and  pursuit  of  happiness.  Similarly,  dependents  and  asso- 
ciates of  the  non-insured  pay,  in  the  toils  of  penury,  the 
same  high  penalty  without  distinction,  whether  inflicted  by 

62 


JOHN  WANAMAKER,  patron  of  life  insurance  —  at  one 
time  the  heaviest-insured  man  in  America,  and  father  of 
Rodman  Wanamaker,  who  at  the  present  time  carries  more 
insurance  than  any  other  man  in  America. 


y/  3  INSIHRAN  M  SERVE  YOU. 


. 
-nl 

ni  num  isrllo  vnr>  nsdl 


pen 


weak  as  .  • 

izing  the 


tion 

Th  >aw 

impc  Knowing 

offender  ^  codes 

enactex; 
and  pursuit 
ciates  of  tlu 
same  high  \  -*  "X 


JOHN  WANAMAKER 


You:      How  Life  Insurance  Can  Serve  You.    65 

brutal  disregard  of  the  knowing  mind  or  thoughtlessly  by 
the  neglectful  unknowing. 

Since  the  days  of  Robert  Burns  life  insurance  has 
evolved  into  a  system  of  protection  that  offers  the  inde- 
pendence of  capital  to  the  uncapitalized  and  the  assurance  of 
continued  capital  to  the  capitalized.  He  who  would  be 
served  by  life  insurance  must  apply  when  conditions  of 
health  and  strength  least  suggest  its  need.  Life  insurance 
is  not  issued  to  the  weakling  and  diseased ;  it  can  be  obtained 
only  when  contingencies  of  disease  and  death  seem  the  most 
remote.  Among  the  strong  new  entrants  in  life  insurance 
during  the  year  1906,  two  thousand  two  hundred  died  before 
the  year  was  out,  causing  more  than  $4,000,000  to  be  paid  to 
beneficiaries.  Yet,  as  an  event,  death  is  less  to  be  expected 
than  the  loss  of  ruddy  health  —  the  loss  of  the  condition 
under  which  a  standard  life-insurance  policy  can  be  obtained. 

Large  though  its  volume  in  the  fourteen  billions  of  old- 
line  life  insurance  in  force  with  American  companies  the 
business  is  but  in  its  adolescence.  The  usages  to  which  life 
insurance  may  wisely  be  applied  beyond  the  great  central 
purpose  of  family  protection  are  only  meagerly  developed. 
Not  to  belittle  its  present  proportions  let  it  be  remembered 
that  $14,000,000,000  equals  in  figures  about  twelve  per  cent 
of  the  total  wealth  of  this  country,  exceeding  such  huge 
aggregations  of  national  wealth  as  the  total  value  of  manu- 
factured products  and  the  total  value  of  railroads.  In  1863 
there  was  in  force  $163,000,000  of  life  insurance,  and  sav- 
ings bank  deposits  to  the  extent  of  $150,000,000.  Forty-six 
years  later  the  amount  of  deposits  was  twenty-three  times 
as  great,  amounting  to  $3,690,000,000,  while  the  volume  of 
life  insurance  exceeded  seventy-five,  times  the  amount  in 
1860. 

Pseudo-philosophers,  viewing  the  large  proportions  of 


66  The  Romance  of  Life  Insurance. 

life  insurance,  and  wholly  innocent  of  the  knowledge  con- 
tained in  our  1900  census  report  that  thirty-two  per  cent  of 
the  widows  in  this  country  are  obliged  to  earn  their  own 
living,  conclude  at  times  that  life  insurance  is  overdone; 
while  the  more  thoughtful  may  ask,  Why  do  you  state  the 
business  is  but  in  the  youth  of  its  vigor  ?  Edward  A.  Woods, 
of  the  famous  Woods  Insurance  Agency  at  Pittsburg,  who 
has  done  much  to  popularize  life  insurance  by  explaining  it, 
answered  this  question  in  the  following  way : 

The  estimated  population  of  the  United  States  in  1906  was 
17,830,802  families,  of  84,154,009  persons,  of  whom  29,285,922  were 
wage-earners.  Assuming  average  earnings  of  $500  a  year,  and  the 
average  age  of  each  wage-earner  thirty-five,  with  an  expectancy, 
therefore,  of  thirty-two  years,  the  present  value  of  each  life  would 
be  $8,937,  the  amount  required  to  produce  $500  a  year  for  thirty-two 
years.  Excluding  from  consideration  the  lives  of  all  women  who 
are  not  wage-earners,  we  have : 

Total  value  of  productive  lives $261,728,284,914 

Insured  for  12,597,39*  .738 

Percentage  of  value  insured 4.8  per  cent. 

Of  the   116  billions  of  property  in  the 
United  States,  the  combustible  does 

not  exceed 55,000,000,000 

Total  fire  insurance  carried 45,000,000,000 

Percentage  of  value  insured 82  per  cent. 

Mr.  Woods'  fire-insurance  figures  make  a  telling  com- 
parison. Life,  the  great  creator  and  conservator  of  the 
world's  wealth,  is  grossly  underinsured  when  compared  with 
fire  insurance,  estimated  to  cover  three-quarters  of  com- 
bustible property  of  the  civilized  world,  or  with  marine 
insurance,  which  covers  practically  all  property  afloat. 

Another  answer  to  the  life-insurance  question,  though 
regrettably  one  that  can  not  be  shown  in  aggregates,  is  the 
answer  that  must  come  when  each  of  you  put  to  yourself  the 
query:  "Am  I  insured  in  proper  amount ?"  In  other 


You:     How  Life  Insurance  Can  Serve  You.    67 

words,  were  you  on  your  death-bed,  realizing  the  fact,  as  did 
Robert  Burns,  would  the  lack  of  life  insurance  in  proper 
amount  be  half  your  disease,  or  any  portion  of  it  ? 

Life  insurance,  like  all  other  forms  of  insurance,  is 
primarily  protection.  It  is  not  an  accumulator  of  wealth, 
but  a  distributor  —  an  indemnifier  exacting  the  small  tolls 
from  the  living  mass  for  indemnity  upon  the  deceasing  few. 
Unlike  indemnity  against  risks  which  may  or  may  not  hap- 
pen, life  insurance  covers  the  unescapable  event  of  death,  the 
only  uncertainty  being  the  time  of  its  inevitable  occurrence. 

Most  properly  then,  life  insurance,  again  like  other  forms 
of  insurance,  is  a  protection  tax.  Vain  endeavors  to  give  life 
insurance  aspects  of  being  an  accumulator  of  wealth,  a  rival 
of  savings  banks,  or  a  high-paying  investment,  have  been 
made  in  misguided  search  for  motives  that  might  influence 
patrons,  whereas  a  staunch  adherence  to  the  primary  pro- 
tection power  of  life  insurance  establishes  abundant  motive 
and  when  properly  presented  must  prevail.  In  its  own  field 
of  protection  life  insurance  is  beyond  the  competition  of 
purely  savings  or  investment  institutions.  The  savings  bank, 
the  trust  company,  the  building  and  loan  association,  and  the 
thousand  and  one  other  worthy  investment  and  savings 
institutions  can  receive  the  money  of  their  patrons,  and  in 
the  event  of  their  life  and  continued  contribution,  hoard  and 
amass  these  sums.  But  the  life-insurance  company  is  alone 
in  supplying  a  complete  and  finished  investment,  accumula- 
tion, savings,  or  whatever  else  you  choose  to  call  it,  from  its 
very  inception. 

With  the  first  premium  paid  on  a  policy  the  entire  sum 
of  the  policy  becomes  at  once  the  available  estate  of  the 
policyholder  in  event  of  his  decease.  It  is  his  to  will.  No 
portion  of  his  estate  can  be  more  secure,  dollar  for  dollar, 
or  more  certain  of  realization.  It  is  not  to  be  denied  that 


68  The  Romance  of  Life  Insurance. 

the  Ordinary  Life  policy  has  savings-bank  features,  and  the 
Limited  Payment  Life  policy  and  the  Endowment  policy  suc- 
cessively more  so,  but  to  attempt  to  subordinate  its  protective 
functions  to  investment  appeal  is  to  distort  life  insurance  and 
subtract  from  it. 

Opinion  fixes  the  Whole  Life  or  Ordinary  Life  policy  as 
the  basic  insurance  contract.  The  Ordinary  Life  policy  is  a 
contract  to  pay  the  face  amount  upon  the  death  of  the  insur- 
ant, provided  that  death  occurs  while  the  policy  is  being 
continued  by  payment  of  a  level  premium  fixed  for  life.  The 
Ordinary  Life  policy  may  therefore  be  called  a  continuous 
premium  policy,  the  premiums  to  be  paid  during  life,  and  the 
benefit  paid  at  death.  Annual  premium  charges  run  about 
two  per  cent  at  age  twenty-five,  to  three  per  cent  at  age 
forty,  less  on  the  non-participating  plan,  and  subject  to  divi- 
dend reductions  on  the  mutual  plan.  At  older  ages  the  pre- 
miums run  increasingly  higher.  Modern  Ordinary  Life 
policies  provide  also  equities  in  paid-up  insurance  in  event  of 
surrender,  but  so  long  as  the  policyholder  would  enjoy  with- 
out qualification  the  protection  of  maximum  death  benefit 
stated  in  the  policy,  he  must  continue  it  in  full  force  by  the 
payment  of  premiums  thereon. 

Next  in  order  is  the  Limited  Payment  life-insurance 
policy,  the  one  with  premiums  limited  to  ten,  fifteen  or 
twenty,  or  any  other  number.  Limited  Payment  policies  are 
Ordinary  Policies  over  again,  the  distinction  being  that 
instead  of  premiums  being  required  continuously  during  the 
lifetime  of  the  insured,  a  mathematical  equivalent  is  exacted 
in  a  limited  number  of  premiums  —  usually  twenty  —  unless, 
of  course,  premiums  cease  by  prior  death.  Therefore  the 
premium  on  the  Limited  Payment  policy  is  higher  than  the 
continuous  premium  policy,  and  according  to  the  fewness  of 
premiums;  the  extreme  case  being  a  one-premium  policy 


You:     How  Life  Insurance  Can  Serve  You.    69 

called  a  Single-payment  life  insurance.  The  one-premium, 
or  as  it  is  better  known,  the  Single-premium  policy,  at  age 
forty  costs  about  fifty  per  cent  of  the  amount  it  insures ;  at 
younger  ages  the  premium  is  correspondingly  lower,  at  older 
ages  higher. 

These  simple  explanations  cover  the  distinguishing  feat- 
ures of  that  vast  number  of  life-insurance  policies  that  have 
at  times  been  absurdly  called  "  die  to  win  "  contracts.  This 
pseudonym  has  too  often  hidden  sinister  selfishness  to  be 
even  humorous.  It  needs  but  superficial  analysis  to  strip  it 
of  any  semblance  of  logic,  for  who  would  die  to  realize  on 
his  insurance,  or  who  in  dying  can  be  said  to  win? 

Endowment  policies  provide  insurance  for  those  who 
need  or  want  more  than  the  protection  purer  life  policies 
offer.  By  means  of  Endowment  insurance  a  policyholder  is 
protected  in  event  of  death  during  the  continuance  of  the 
contract,  and  in  addition  is  guaranteed  the  payment  of  the 
sum  in  event  of  surviving  the  designated  endowment  period. 
Thus  a  Twenty-year  Endowment  policy,  the  most  popular 
form  of  Endowment,  is  good  immediately  for  its  full  face  in 
event  of  death,  and  good  to  the  holder  in  event  of  surviving 
the  twenty  years.  All  forms  of  Whole  Life  contracts  are  as 
certain  as  death  in  their  eventual  payment,  but  the  Endow- 
ment policy  may  be  said  to  be  both  as  certain  as  death  and 
time,  for  it  must  be  paid  one  way  or  the  other  by  the  end  of 
the  nominated  endowment  period.  The  Endowment  policy 
is  higher  priced  because  of  the  provision  it  makes  for  pay- 
ment during  the  lifetime  of  the  policyholder. 

Term  insurance  policies  provide  temporary  insurance 
protection.  Frequently  these  Term  policies  are  non- 
renewable  and  terminate  absolutely  at  the  expiry  of  the 
period  for  which  they  are  written;  in  other  cases  they  are 
renewable,  but  always  at  the  higher  premium  for  the  attained 


70  The  Romance  of  Life  Insurance. 

age,  and  except  where  the  Term  is  for  a  long  number  of 
years,  carry  absolutely  no  surrender  values.  Term  insurance 
is  the  lowest  premium  insurance  of  all  —  the  shorter  the 
term,  the  lower  the  premium.  It  is  erroneous  to  think  Term 
insurance  cheaper  than  other  forms.  Its  premiums  are  less 
—  so  are  its  benefits. 

These  forms  of  insurance  just  described  embrace  all  but 
a  small  per  cent  of  outstanding  American  life  insurance. 
Varied  classes  and  conditions  of  insurance  needs  can,  with 
occasional  exceptions,  be  supplied  by  judicious  selection 
among  the  forms  described;  the  exceptional  cases  can 
obtain  policies  fitting  the  exceptional  circumstances  at  com- 
mensurate premium. 

"  What  kind  of  a  policy  should  I  take  ? "  is  the  con- 
stantly recurring  question  of  the  prospective  insurant.  With 
some  there  is  commanding  reason  for  taking  one  particular 
form  of  insurance  and  no  other.  In  different  circumstances 
it  may  be  a  matter  of  small  importance,  as  the  several  forms 
each  offer  insurance  value  in  full  on  a  mathematical  basis  of 
mortality  table  and  assumed  interest  rate  for  the  premium 
exacted. 

As  a  general  principle,  wage-earners  and  those  of  limited 
means  do  well  to  select  the  Ordinary  Life  policy,  because  of 
the  large  amount  of  protection  it  supplies  for  the  premium. 
Men  of  large  resources  find  it  also  an  excellent  form  of  pro- 
tection, because  it  insures  on  the  minimum  premium,  leaving 
available  dollars  for  investment  in  the  profitable  channels 
that  large  resources  supply. 

The  Limited  Payment  Life  policy's  strong  point  is  that  it 
may  be  paid  for  during  the  time  of  relatively  large  pro- 
ductivity. There  is  a  considerable  element  of  savings  in  a 
Limited  Payment  policy,  the  more  so  as  the  number  of  pay- 
ments are  shortened.  Ten-payment  Life  policies  are  fre- 


You:     How  Life  Insurance  Can  Serve  You.    71 

quently  selected,  and  properly  so,  by  young  and  middle-aged 
men  with  the  ability  to  pay  more  than  the  Ordinary  Life  pre- 
mium for  their  current  protection,  and  the  wisdom  to  recog- 
nize that  insurance  is  a  necessity  and  must  be  paid  for  at 
one  time  or  another.  The  Twenty-payment  Life  policy  is 
probably  the  most  popular  of  all  forms  of  insurance,  for  the 
reason  that  the  premiums  are  not  greatly  higfier  than  the 
Ordinary  Life  premium  and  yet  offer  a  contract  paid  up  in 
full  at  a  definite  future  time.  Smaller  salaried  men,  whose 
income  must  shrink  as  age  deteriorates  the  value  of  their 
services,  would  do  well  to  make  the  extra  sacrifice  necessary 
to  provide  an  adequate  amount  of  Twenty-payment  Life 
insurance. 

Endowment  policies,  and  particularly  Endowment  pol- 
icies for  twenty  years  or  longer,  are  admirable  as  a  protec- 
tion and  a  savings  fund.  It  is  speciously  argued  that  a  pros- 
pective insurant  might  more  wisely  separate  his  insurance 
protection  from  his  savings  account,  carry  his  insurance  on 
life  forms  and  invest  the  balance  of  premium  over  a  life 
form  in  the  savings  bank.  Endowments  of  twenty  years  and 
longer  show  well  when  contrasted  on  the  basis  of  an  Ordi- 
nary Life  policy  and  savings  bank  account  with  the  tre- 
mendous advantage  of  systematizing  the  savings  of  the 
policyholder.  People  entering  upon  an  obligation  to  pay  an 
Endowment  premium  will  do  so  where  too  often  the  funds, 
in  lack  of  definite  obligation  or  system,  would  not  be  saved 
at  all. 

Endowment  policies  are  particularly  the  policies  for 
women. 

Term  insurance,  previously  described  as  one  of  the 
fundamental  forms  of  insurance,  is  only  valuable  for  afford- 
ing protection  over  temporary  necessity.  As  insurance  for 
the  responsible  head  of  a  family  it  is  unsatisfactory,  and 


72  The  Romance  of  Life  Insurance. 

though  the  premium  is  less,  it  is  not  likely  to  be  ultimately 
the  cheaper,  because  successive  renewals  at  increased  pre- 
mium raise  the  cost  above  a  level  premium  contract  on  the 
one  hand,  and  on  the  other  hand,  where  no  renewal  privilege 
exists  the  holder  is  likely  to  find  himself  without  life  insur- 
ance at  the  expiry  of  the  term,  and  without  the  ability  to 
stand  a  medical  examination  that  would  permit  it.  Term 
insurance  has  its  more  particular  field  among  business  men, 
and  those  undertaking  temporary  financial  obligations  which 
would  be  affected  unfavorably  or  prove  a  total  loss  in  event 
of  death. 

Annuities,  which  are  in  many  ways  the  reverse  of  life 
insurance,  show  tendencies  to  popularity  on  this  side  of  the 
Atlantic,  after  the  fashion  they  now  enjoy  on  the  other  side. 
Annuities  are  usually  purchased  in  one  lump  sum  to  provide 
an  annual  payment  during  the  lifetime  of  the  annuitant. 

The  death  of  the  centenarian  Betsy  Gage,  in  April,  1907, 
brought  the  subject  of  annuities  into  newspaper  columns. 
The  case  is  interesting  because  of  the  advanced  age  at  which 
the  annuities  were  bought.  In  1880,  when  Mrs.  Gage  was 
seventy-two  years  of  age,  she  paid  $2,000  in  purchase  of  an 
annuity  payable  annually  to  her  so  long  as  she  lived.  Six- 
teen years  afterward,  when  eighty-three  years  old,  she  pur- 
chased with  $1,300  an  additional  annuity,  making  a  total 
investment  of  $3,300.  Annuity  payments  returned  to  Mrs. 
Gage  during  her  lifetime  exceeded  $12,000,  and  no  doubt 
contributed  largely  in  achieving  the  comfortable  old  age 
which  was  hers  by  removing  all  financial  care.  Innumerable 
annuities  might  be  quoted  where  the  returns  were  much 
larger,  while  in  still  other  cases  the  early  death  of  the 
annuitant  forfeited  the  purchase  price  to  the  company 
before  the  payment  of  the  second  annuity.  Upon  the  whole, 


You:     How  Life  Insurance  Can  Serve  You.     73 

however,  annuities  have  worked  out  to  the  great  satisfaction 
and  profit  of  their  purchasers. 

Whatever  form  of  life  insurance  is  contemplated  or  is 
now  being  carried,  knowledge  of  its  various  provisions  —  the 
how  and  the  when  of  their  being  —  is  a  necessary  condition 
to  obtaining  largest  service.  Every  policyholder  should  be 
familiar  with  rights  of  grace  and  reinstatement  before  taking 
any  chances  of  forfeiting  the  insurance  in  failure  to  make 
prompt  premium  payment.  Usually  policies  provide  for 
thirty  days'  grace,  and  for  reinstatements  in  event  of  lapse. 
As  a  rule  companies  grant  large  leniency  to  lapsed  policy- 
holders  who  wish  to  reinstate,  but  at  times  are  forced  to 
decline  reinstatements  of  persons  sorely  needing  insurance, 
because  their  physical  condition  forbids  it  in  justice  to  the 
remainder  of  a  mutual  membership  whose  contracts  specif- 
ically state  that  reinstatement  must  be  predicated  on  good 
health.  Until  reinstated  a  forfeited  policy  means  nothing; 
in  event  of  death  in  the  interim  it  is  nothing. 

In  this  connection  every  policyholder  should  examine  his 
contract  for  "  Extended  Insurance  Provisions."  Extended 
insurance  as  written  to-day  is  frequently  "  automatic."  That 
is,  where  the  policy  lapses  for  non-payment  of  premium  and 
no  other  surrender  value  is  requested  in  accordance  with  the 
terms  of  the  contract,  the  policy  continues  in  full  force  under 
the  extended  insurance  provision  without  action  of  the 
insured,  for  the  number  of  years  and  days  stated  in  the 
policy. 

Intelligent  use  of  the  extended-insurance  provision  will 
at  times  enable  a  policyholder  to  discontinue  premiums  and 
yet  obtain  all  necessary  insurance,  where  his  span  of  lifetime 
is  certain  to  be  included  within  the  number  of  years  for 
which  the  same  can  be  extended,  or  where  his  affairs  need 
no  insurance  after  the  period  to  which  this  policy  would  be 


74  The  Romance  of  Life  Insurance. 

carried  as  a  surrender  value.  Where  the  extended  insurance 
is  to  be  obtained  only  upon  application,  it  is  the  more  neces- 
sary for  the  insured  to  be  watchful  of  premium  payments. 
Extended-insurance  provisions  are  dangerous  ones  to  abuse. 
The  policyholder  who  improperly  considers  this  provision  to 
be  useful  in  furnishing  free  insurance  for  a  number  of  years 
will  but  be  using  up  his  equity  in  his  previous  premium  pay- 
ments, to  find  himself  at  the  end  of  the  extended  period 
absolutely  without  insurance  and  only  able  to  obtain  it,  if  at 
all,  upon  passing  a  rigid  medical  examination  and  paying 
the  higher  rate  for  his  attained  age. 

Carelessness  in  appreciating  and  recording  the  value  of 
this  extended  insurance,  especially  where  it  is  granted  with- 
out action  on  the  part  of  the  lapsed  policyholder,  is  keeping 
thousands  of  dollars  tied  up  in  the  home  offices,  where  the 
insured  has  died  within  the  extended  term,  leaving  both  the 
company  and  beneficiary  unaware  of  the  fact  that  there  is  a 
claim  under  such  policy. 

The  annals  of  life-insurance  companies  are  replete  with 
dramatic  incidences  of  unexpected  succor  through  extended 
insurance. 

Paid-up  insurance  as  a  surrender  value,  an  older  custom 
than  that  of  extending  the  insurance,  is  also  better  under- 
stood. With  certain  companies  and  in  certain  States  the 
rule  is  to  make  the  paid-up  surrender  value  the  automatic 
feature  in  event  the  lapsing  policyholder  does  not  make  a 
selection  of  surrender  value.  Every  paid-up  policy  means  an 
ultimate  claim  to  the  company  and  it  is  therefore  the  more 
necessary  that  paid-up  surrender  values  be  properly  recorded 
and  understood.  It  is  only  in  this  way  that  the  full  benef- 
icence of  the  policy  will  reach  to  the  claimants.  One  com- 
pany has  recently  adopted  the  practice  of  advertising  in  its 
company  paper  for  information  about  paid-up  policyholders 


You:     How  Life  Insurance  Can  Serve  You.     75 

of  whom  it  has  lost  track.  As  a  result  of  this  advertising  in 
two  months  one  hundred  and  fifty  names  were  located,  and 
thirteen  claims  were  paid  beneficiaries  of  policyholders  found 
to  be  deceased. 

In  surrendering  a  policy  for  paid-up  insurance,  a  policy- 
holder  sacrifices  the  difference  between  the  paid-up  policy 
and  the  full  face  of  the  contract.  Where  this  difference  is 
large,  it  becomes  the  more  important  to  debate  whether  the 
burden  of  continuing  premiums  is  not  a  lighter  one  than 
that  of  risking  death  without  necessary  insurance  protection. 

Cash  surrender  values,  now  contained  in  practically  all 
policies,  and  sometimes  made  the  automatic  surrender  value, 
are  a  much  misused  policy  feature.  A  policyholder  who 
would  surrender  his  policy  for  cash  should  ask  himself  if  the 
conditions  for  which  he  originally  took  this  insurance  still 
exist.  If  they  do  not  exist  in  appreciable  degree,  it  may  be 
advisable  to  surrender  the  policy  for  cash.  If  the  same  con- 
ditions do  hold,  in  whole  or  in  considerable  part,  nothing  but 
the  direst  need  of  cash  and  the  inability  to  obtain  it  under 
any  other  circumstances  would  justify  a  cash  surrender,  or 
should  cause  a  wife  to  join  in  request  for  cash  that  cancels 
insurance.  Since  practically  all  companies  grant  loans  on 
the  policy  wherever  a  cash  surrender  value  is  available,  it  is 
the  part  of  wisdom  for  a  needy  policyholder  to  use  the  policy- 
loan  provision  rather  than  surrender  for  cash.  He  can  thus 
have  his  insurance  continue  in  force,  remembering  that  it  is 
in  time  of  financial  stress  that  the  beneficiary  most  needs  to 
be  protected  from  the  dire  results  of  a  legacy  of  orphans, 
poverty,  or  both. 

Like  the  cash  surrender  itself,  loan  values  must  be 
approached  with  appreciation  of  the  sacred  character  of  life- 
insurance  funds.  The  man  who  would  borrow  on  his  life 
insurance  to  indulge  in  speculations,  or  any  form  of  luxury, 


76  The  Romance  of  Life  Insurance. 

is  militating  against  the  interests  of  his  own  and  against  the 
purposes  of  his  insurance.  The  loan  provision  should 
remain  an  anchor  to  windward  —  an  assurance  in  times  of 
temporary  distress  of  means  to  meet  the  premium  obligation. 
A  policy  loan  is  a  policy  mortgage.  The  man  whose  respect 
for  his  home  and  his  own  would  make  him  reluctant  to  mort- 
gage his  house  should  logically  be  more  loath  to  mortgage 
his  insurance. 

To  this  general  statement  there  are  exceptions.  In  the 
1907  money  scarcity,  when  men  of  means  were  unable  to 
obtain  funds  which  were  theirs  in  banking  institutions  and 
which  they  could  profitably  employ,  life-insurance  policies 
were  utilized  for  temporary  loans.  While  the  policies  only 
incidentally  provide  loans,  it  is  to  the  credit  of  life  insurance 
that  no  policyholder  was  denied  a  contract  loan  at  the  con- 
tract interest  rate,  though  banking  institutions  throughout 
the  country  were  withholding  from  their  depositors  money 
which  was  theirs  legally  and  morally  to  demand.  Many  a 
well-to-do  man,  who  could  safely  have  used  policy-loan  pro- 
visions to  the  extent  of  moneys  which  should  have  been 
available  from  the  banks  and  trust  companies,  faced  embar- 
rassment instead  because  he  did  not  know  his  privileges 
under  his  life-insurance  policies  and  how  to  take  advantage 
of  them.  By  the  same  reasoning  it  follows  that  policy- 
holders  borrowing  in  such  times  of  financial  stress  would  do 
well  to  replace  the  money  and  lift  the  mortgage  from  their 
life-insurance  policies,  whenever  money  may  become  more 
generally  available. 

Every  word  in  a  life-insurance  policy  means  something, 
and  should  be  read,  understood,  and  remembered.  Within 
brief  space  it  is  not  possible  to  treat  the  variety  of  provisions 
as  to  adjustment  for  age,  and  penalties  for  change  of  occu- 
pation and  traveling  beyond  limits  set  forth  in  the  policy, 


You:     How  Life  Insurance  Can  Serve  You.    77 

etc.  Any  person  who  travels  beyond  the  confines  of  the 
United  States  should  look  up  his  or  her  life-insurance  con- 
tracts to  avoid  possible  litigation  and  loss  in  event  of  death 
in  restricted  or  forbidden  territory. 

Modes  of  settlement  should  receive  the  thoughtful  con- 
sideration of  the  policyholder.  The  most  usual  form  of  pay- 
ment of  a  life-insurance  policy  is  in  one  sum  of  the  face 
amount,  but  a  large  variety  of  policies  allow  other  options  or 
absolutely  stipulate  that  the  policy  be  paid  in  some  other 
way,  such  as  in  annual  instalments  during  ten,  fifteen  or 
twenty  years.  Policies  payable  in  annual  instalments  receive 
a  higher  total  payment  for  the  premium  because  of  the 
interest-earning  powers  of  money.  Continuous  instalment 
features  are  often  added  to  twenty-instalment  contracts, 
stipulating  that,  in  event  of  nominated  beneficiary  shall  sur- 
vive to  receive  the  full  twenty  instalments  agreed  upon,  the 
instalments  continue  thereafter  during  the  remainder  of  this 
beneficiary's  lifetime.  If  under  a  continuous  instalment 
option  the  beneficiary  dies  before  the  full  twenty  instalments 
have  been  paid,  the  commuted  value  of  the  remainder  of 
twenty  instalments  is  paid  the  estate. 

All  these  methods  of  payment,  whether  in  one  lump  sum 
or  in  a  fixed  number  of  instalments  or  in  continuous  instal- 
ments, are  mathematical  equivalents,  leaving  decision  to  be 
rendered  on  which  method  is  best  adapted  to  the  claimant. 
Where  there  is  but  one  beneficiary,  and  this  beneficiary 
inexperienced  in  the  handling  of  money,  a  policy  calling  for 
twenty  instalments  and  continuous  thereafter  makes  certain 
provisions  for  maintenance  to  the  extent  of  the  instalments, 
and  eliminates  the  danger  of  loss  through  bad  judgment,  bad 
investments  or  bad  advice.  Similarly  the  policy  payable  in 
ten,  fifteen  or  twenty  instalments  or  any  number  of  instal- 
ments certain,  can  be  selected  to  supply  money  annually  to 


78  The  Romance  of  Life  Insurance. 

the  beneficiaries  over  the  period  in  which  it  would  be  most 
valuable.  On  the  other  hand,  the  old-fashioned  payment  in 
one  sum  gives  the  largest  financial  independence  to  trust- 
worthy and  efficient  beneficiaries,  and  allows  the  increment 
which  investment  ability  can  add  to  capital. 

It  behooves  a  policyholder  to  reconsider  in  the  face  of 
later  events  and  changed  circumstance,  the  method  of  pay- 
ment of  his  policies  to  meet  changed  conditions,  and  have  his 
policies  changed  as  conditions  dictate. 

There  are  two  general  plans  of  insurance  —  the  partici- 
pating and  the  non-participating.  Non-participating  pre- 
miums are  lower  than  the  participating  or  mutual  premiums, 
but  the  latter  policy  provides  for  the  return  of  surplus  pre- 
mium in  dividends. 

Another  element  of  choice  is  present  in  mutual  insurance 
in  the  manner  of  dividend  payments.  The  insurant  must 
decide  whether  dividends  shall  be  received  in  cash  or  as  a 
reduction  of  the  premium  where  further  premiums  are 
required  or  in  paid-up  additions  to  the  policy.  If  at  the 
dividend-paying  time  the  insured  is  non-insurable  for  new 
insurance  it  would  most  assuredly  be  advisable  to  apply  the 
dividends  in  purchase  of  paid-up  additions  to  the  contract,  as 
this  is  the  only  way  then  open  to  increase  the  insurance,  and 
as  this  option  may  thus  furnish  the  non-insurable  person 
insurance  upon  the  basis  of  a  standard  risk.  In  purchasing 
a  paid-up  addition  to  the  policy,  the  dividend  is  applied  as  a 
single  premium.  Since  single-premium  insurance  calls  for 
the  largest  outlay  for  the  amount  of  insurance  provided,  the 
man  anxious  to  increase  his  insurance  to  the  full  extent  of 
his  means  will  find  it  wiser  to  take  the  dividend  in  cash  and 
apply  it  as  an  annual  premium  upon  a  new  insurance,  where 
such  new  insurance  is  obtainable. 

A  dividend  applied  as  an  annual  premium  at  attained  age 


You:     How  Life  Insurance  Can  Serve  You.     79 

will  purchase,  at  middle-insurance  ages,  fifteen  times  as 
much  insurance  as  the  same  dividend  would  add  as  a  paid-up 
life  addition  to  the  contract.  At  the  younger  ages  it  would 
purchase  in  even  higher  ratio,  while  in  older  ages  the  ratio 
would  be  less.  Where  the  requirement  for  continued  pre- 
mium payment  becomes  burdensome,  the  dividend  can  be 
applied  in  reduction  of  the  premium,  or  where  the  policy  has 
become  paid  up  and  the  insured  feels  the  volume  of  insur- 
ance to  be  ample,  the  dividend  can  best  be  taken  in  cash. 

Returning  to  the  discussion  of  classes,  various  reasons 
appear  for  taking  life  insurance  that  bring  out  the  catholicity 
of  its  service.  Rich  and  poor,  young  and  old  to  the  age 
limits  of  acceptance,  the  financially  well-to-do  and  the 
financially  involved,  the  laborer  and  the  capitalist,  have  all 
urgent  motives  for  life  insurance,  and  are  well  represented 
in  volume  among  its  patrons.  The  reasons  why  a  poor  man 
without  accumulations  or  capital  needs  insurance  to  dis- 
charge post-mortem  responsibility  to  that  family  which  by 
his  voluntary  act  he  has  created,  are  too  obvious  to  call  for 
utterance.  The  wife  of  his  selection,  the  children  of  his 
parentage,  have  claims  for  support  and  competence  which 
endure  beyond  the  grave. 

The  ministry  of  this  country  are  practically  unanimous  in 
urging  insurance  upon  the  uncapitalized  man.  Some  have 
even  suggested  the  advisability  of  declining  to  marry  the 
salaried  man  without  accumulations  or  without  life  insur- 
ance. 

So  on  up  through  the  scale  to  the  rich  men  of  the  coun- 
try, the  need  of  life  insurance  may  be  pointed  out  in  varying 
ways.  The  most  urgent  advocates  of  life  insurance  are  to 
be  found  among  the  wealthy  men  of  the  nation.  To  go 
through  the  list  of  millionaires  in  the  country  is  to  go 
through  the  list  of  the  heavily  insured  men  of  America. 


80  The  Romance  of  Life  Insurance. 

A  sagacious  Jewish  corporation  of  high  repute  in  Los 
Angeles  recently  purchased  a  Ten-year  Endowment  insur- 
ance upon  the  firm,  at  an  annual  premium  of  $76,722.70,  one 
of  the  largest  annual  premiums  ever  paid  on  a  single  policy. 

Fifteen  years  ago  the  Commercial  Cable  Company 
entered  into  an  agreement  to  insure  employees  upon  the 
Endowment  plan.  Vice-president  George  D.  Wood  stated 
the  purpose  "  to  make  provision  for  the  family  of  the 
employees  of  the  Cable  Company  in  case  of  death,  and  to 
provide  a  source  of  income  for  such  of  the  insured  as  sur- 
vive, but  who  shall  become  no  longer  able  to  perform  their 
duties  satisfactorily."  Similar  institutions  might  well  imitate 
Mr.  Woods'  plan,  which  has  worked  out  with  such  great 
satisfaction  to  the  Cable  Company. 

The  majority  of  the  employees  took  Twenty-year  En- 
dowment contracts  which  will,  therefore,  mature  in  1913. 
One  hundred  and  forty-four  of  the  other  employees  selected 
the  Fifteen-year  Endowment  plan,  maturing  April  6,  1908, 
and  it  is  therefore  possible  to  give  the  following  detail: 
Twenty-three  of  the  employees  died  in  the  meantime,  cover- 
ing insurance  to  the  extent  of  $53,000  paid  to  their  widows 
and  beneficiaries.  Nineteen  employees  discontinued  their 
service,  twelve  cashing  in  their  contracts  at  an  aggregate 
sum  of  $23,000,  and  seven  either  lapsing  their  insurance  or 
reducing  it  in  amount.  The  remaining  one  hundred  and  two 
after  fifteen  years  of  continued  service  received  an  aggregate 
of  $355,428.62,  $71,392.63  of  which  was  dividend  additions. 
The  total  premium  paid  the  company  was  less  than  $300,000, 
one-half  of  which  was  contributed  by  the  Cable  Company, 
the  other  half  by  the  employees,  who  thus  received  at  the 
end  of  fifteen  years  $355,000,  besides  insurance  protection 
during  that  entire  time.  The  operation  of  the  Twenty-year 
Endowments  gives  promise  of  being  even  more  satisfactory. 


You:     How  Life  Insurance  Can  Serve  You.    81 

The  United  Cigar  Stores  Company  is  another  large  cor- 
poration insuring  employees  and  donating  to  the  premium 
payments. 

An  Endowment  deal  of  unusual  character  is  an  insur- 
ance of  $100,000  placed  upon  the  students  and  priests  of  the 
College  of  Valley  Field  near  Montreal  to  endow  the  college. 
The  Twenty-year  Endowment  plan  was  chosen,  the  pre- 
miums paid  from  the  college  fund,  and  the  college  named  as 
beneficiary. 

Partnership  insurances  are  alike  advisable,  whether  a 
partner  is  supplying  capital,  experience,  or  brains  and 
energy.  Each  partner  owes  it  to  himself  to  view  the  possi- 
bilities for  disaster  that  may  result  on  the  other  partner's 
death,  and  to  suggest  the  corrective  in  life  insurance  A 
partnership  policy  can  be  written  in  one  contract  as  a  Joint 
Life  proposition,  and  as  such  is  not  to  be  viewed  as  a  sepa- 
rate insurance  upon  the  partners,  but  more  properly  as  an 
insurance  upon  the  first  death.  The  partners,  like  the  life- 
insurance  company,  are,  of  course,  unable  to  name  which 
member  of  the  firm  this  will  be ;  hence  a  policy  that  covers 
all  members  of  the  firm. 

A  Joint  Life  policy  may  occasionally  be  desirable  for 
other  reasons  than  that  of  business  association.  They  are 
not  infrequently  issued  to  cover  two  lives  or  occasionally 
issued  on  three  people,  but  seldom  more.  It  is  usually  more 
satisfactory  for  a  firm  to  carry  separate  insurances  upon 
the  lives  of  each  member,  making  provision  in  case  of  all 
deaths.  This  offers  facility  for  changing  the  personnel  of 
the  partnership  without  the  complications  that  must  arise 
where  the  partners  are  covered  under  one  Joint  Life  policy. 

Individuals  taking  on  new  obligations  should  record  the 
event  for  increased  insurance  protection  to  the  extent  of  the 
added  obligation.  Marriage  for  the  single  man,  increase  of 


82  The  Romance  of  Life  Insurance. 

family  and  of  dependents  to  the  married  man,  and  increase 
of  standard  of  general  living  or  general  financial  involve- 
ments, all  mark  the  time  for  applying  for  more  insurance. 
The  farmer  needs  extra  insurance  for  every  additional  dollar 
of  mortgage,  and  the  building  and  loan  investor  or  instal- 
ment purchaser  of  real  estate  to  pay  up  his  investment  and 
insure  against  the  loss  of  what  he  has  paid  in  the  past,  in 
event  of  failure  to  live  through  the  contract.  The  height  of 
folly  is  attained  in  lapsing  insurance  at  such  times  to  dis- 
continue premium  obligations. 

An  excellent  bit  of  advice  that  will  save  time  and  money 
is:  avoid  consulting  attorneys  about  your  insurance  until 
you  have  made  inquiries  at  the  home  office  or  at  your  State 
Insurance  Department.  All  the  attorney  does  in  such  cases 
is  to  write  the  company  himself,  or  read  the  policy,  whose 
construction  is  a  matter  of  English  more  often  than  law. 

A  feeling  of  remoteness  where  the  home  office  is  dis- 
tantly located  prevents  many  a  policyholder  from  asking 
explanation  and  advice  on  his  contract  and  insurance  needs 
which  would  redound  to  his  interest.  There  is  no  necessity 
for  this  attitude,  as  all  companies  have  in  their  agents  ambas- 
sadorial representatives.  The  agent  of  the  company  is 
equipped  and  willing  to  render  service  that  calls  for  personal 
appreciation  of  a  situation  and  the  personal  touch. 

Life  insurance  can  serve  you  only  in  the  carrying  of  life 
insurance,  and  serves  him  best  who  insures  most  adequately 
in  proportion  to  his  needs. 

Read  your  policy ;  learn  how  to  use  what  you  have  as  an 
obligation  to  yourself  and  your  own.  Above  all  put  to 
yourself  the  question:  Am  I  insured  in  proper  amount? 
Judge  your  insurance  needs  by  poor  Bobby  Burns'  lament, 
and  act  upon  the  answer. 


MILES  M.  DAWSON. 


THE  THREE  SYS 

;  stock  storv 
his  favbritt 
<ed,  •'  When 
now  on  my 
in  the  n 
word  " 
be  stated  tr 


' 


. 

The  story  o 

i  the  undeniable 

;ase  in  age. 

:ase  being  si 
e  per  cent  a! 

*  at  the  older  a^: 
If  an  insurant  paid 

year's  insuranc 

easing  one, 
ely  up  r 
;ing  at  tT 


IFE  INSURAN 

who,  q\: 
tish  he  had 
other  or; 
not  wit 

'an,  and  at 
insura; 


ty  that 
eachi 


the 

ad  mor 

>me 


;ter, 


known 

intract,  and  for  a  A 

i  a  small  class  of  insurance  companies  th. 
alone.     It  proved  unsatisfactory  for  permanent  insu 
because  of  the  excessive  rates  at  the  higher  a. 

85 


MlLES  M.  DAWSON,  Consulting  Actuary  for  the  New 
York  Legislative  Investigation  Committee,  who  brands 
assessmentism  picturesquely  as  "a  life-insurance  disease." 


CHAPTER   VI. 
THE  THREE  SYSTEMS  OF  LIFE  INSURANCE. 

THE  stock  story  of  the  Irish  fisherman  who,  questioned  at 
his  favorite  pastime  as  to  how  many  fish  he  had  caught, 
replied,  "  When  I  catch  this  one  and  another  one,  with  the 
one  now  on  my  string  I  will  have  three,"  is  not  without  its 
parallel  in  the  reference  to  three  systems  of  life  insurance. 

The  word  "  system  "  implies  a  workable  plan,  and  at  once 
it  must  be  stated  that  but  one  form  of  life  insurance  has 
demonstrated  its  enduring  workability.  Commonly,  how- 
ever, life  insurance  is  classified  into  three  subdivisions  or 
systems:  Old-line,  Assessment,  and  Fraternal. 

The  story  of  the  three  systems  runs  simply,  beginning 
with  the  undeniable  increase  in  mortality  that  follows  an 
increase  in  age.  Adult  mortality  increases  constantly,  the 
increase  being  small  up  to  middle  age,  reaching  a  death  rate 
of  one  per  cent  about  age  forty,  growing  higher  in  increasing 
ratio  at  the  older  ages. 

If  an  insurant  paid  each  year  merely  the  current  cost  of 
his  year's  insurance,  the  rate  would  consequently  be  an 
increasing  one,  lowest  during  the  first  year,  increasing 
moderately  up  to  middle  life  and  more  rapidly  thereafter, 
tending  at  the  older  ages  to  become  prohibitory.  A  contract 
of  this  kind  was  formerly  known  as  the  "  Natural  Pre- 
mium "  or  "  Step  Rate  "  contract,  and  for  a  while  devel- 
oped a  small  class  of  insurance  companies  that  issued  it 
alone.  It  proved  unsatisfactory  for  permanent  insurance 
because  of  the  excessive  rates  at  the  higher  ages,  forcing 

85 


86  The  Romance  of  Life  Insurance. 

many  to  withdraw  at  a  time  when  they  greatly  needed  insur- 
ance and  after  long  persistence  in  making  payments. 

Recognizing  the  impracticability  of  an  increasing  rate 
that  would  assume  excessive  proportions  in  later  life,  old- 
line  life-insurance  companies  equated  the  rate  upon  proper 
tables  of  mortality  to  provide  an  unchanging  or  "  level " 
premium.  This  means  that  the  equated  premium  must  be 
larger  than  necessary  during  the  earlier  years  of  the  insur- 
ance, and  implies  necessity  for  husbanding  the  excess  at  the 
assumed  interest  rate,  thus  forming  the  legal  reserve  of 
old-line  life-insurance  companies. 

Old-line  reserves  are  scientifically  computed  in  accord- 
ance with  assumptions  of  mortality  and  interest  adopted  by 
the  company,  and  of  necessity  must  not  be  less  than  required 
by  the  standards  fixed  by  the  laws  of  the  States  in  which 
the  company  does  business.  As  the  rates  of  mutual  old-line 
life-insurance  companies  may  prove  more  than  necessary  for 
the  conduct  of  the  business,  the  payment  of  policy  obliga- 
tions as  they  mature,  and  the  accumulation  of  proper 
reserves,  the  remainder  is  returned  to  the  policyholders  by 
way  of  dividends. 

From  this  it  will  be  seen  that  life-insurance  reserves  are 
an  effect  and  not  a  cause  —  the  effect  of  charging  a  non- 
increasing  premium  for  an  increasing  risk.  Lack  of  appre- 
ciation of  this  fact  has  given  a  receptive  audience  to  the 
assessment  cry  of  "  Keep  your  reserve  in  your  pocket," 
which  means,  if  anything,  increasing  premiums  at  a  time  of 
decreasing  productivity. 

Assessmentism,  in  lack  of  proper  provision  for  the 
increasing  risk,  charges  premiums  lower  than  is  permissible 
under  the  standards  fixed  by  the  States  for  old-line  life- 
insurance  companies,  the  contract  being  supplemented  by 
safety  or  emergency  clauses  of  assessmentism.  These  safety 


The  Three  Systems  of  Life  Insurance.          87 

clauses,  legally  expounded,  are  the  "  Hands  Off  "  sign  to 
State  supervision.  They  cheapen  the  insurance  to  the  price 
and  deprive  the  word  "  inadequate "  of  its  Websterian 
meaning. 

Here  is  a  type  of  the  safety  clause  boldly  presenting  the 
weak  point  of  assessmentism  as  a  mark  of  strength,  as  if  the 
legal  reserve,  which  is  but  an  accounting  of  excess  level  pay- 
ments in  the  earlier  years,  were  an  unnecessary  tax  upon 
policyholders.  The  clause,  minus  the  italics,  reads : 

This  association  qualifies  under  the  so-called  "Assessment  Laws," 
under  which  it  is  not  obliged  to  tax  its  policyholders  to  maintain  the 
legal  reserve  of  level  premium  or  "  old-line  "  companies 

The  past  experience  of  this  company  and  the  American  tables  of 
mortality  indicate,  as  we  believe,  with  absolute  certainty,  that  the 
rate  spoken  of  as  the  maximum  will  never  be  exceeded.  If,  how- 
ever, any  unexpected  emergency  should  arise  whereby  the  mortuary 
and  reserve  funds  should  become  exhausted,  then,  and  in  such  case 
only,  it  is  agreed  that  the  policyholder  shall  be  liable  for  such  fur- 
ther assessmennt  as  may  be  necessary  to  meet  such  emergency  and 
maintain  the  solvency  of  the  company. 

"  Legal  reserve  is  legalized  robbery,"  cry  assessmentism's 
active  supporters,  in  attempt  to  confuse  an  averaging  of  the 
cost  under  a  responsible  system  into  appearances  of  addition 
to  the  cost.  Fearful  of  this  alliteration  as  permanent  justi- 
fication, other  flagrant  fallacies  are  advanced.  Old-line  life- 
insurance  rates  are  presented  as  excessive  because  of  the 
enormous  lapse  gains  which  accrue  to  the  company  and  are 
not  anticipated  in  the  premiums,  unmindful  that  lapses  in  the 
first  year  or  two  in  old-line  life  insurance  are  not  a  source 
of  profit  because  of  large  initial  expense,  and  that  after  that 
time  surrender  values  in  generous  amount  are  allowed. 

Chief  among  assessment  fallacies  is  the  "  new  blood  " 
error.  Assessmentism  speciously  argued  that  by  means  of 
increase  in  the  membership,  the  average  age  of  a  company 


88  The  Romance  of  Life  Insurance. 

would  be  kept  down  to  a  point  where  no  increase  in  mortality 
would  be  experienced  in  the  aggregate.  Years  ago  it  was 
pointed  out  that  this  argument  meant  the  taking  in  of  new 
members  at  an  increasing  ratio  impossible  to  maintain,  and 
involving  the  absurdity  of  persuading  young  men  to  flock 
into  a  company  and  bear  the  burdens  of  an  older  member- 
ship. Despite  these  considerations,  assessmentism  flourished. 

A  clientele  attracted  by  the  low  premium  and  for  the 
most  part  anxious  to  deceive  themselves  into  a  belief  in  its 
adequacy,  supplied  an  eager  patronage.  Opportunities  for 
graft  and  profit  to  the  promoters  of  assessmentism  attracted 
a  brood  of  conscienceless  adventurers  prolific  in  unmeaning 
promises  and  eager  for  plunder.  Offering  life  insurance  at 
a  less  rate  than  it  could  possibly  be  carried  throughout  life, 
even  with  skilled  and  honest  management,  these  institutions 
could  yet  put  off  disaster  so  long  as  their  assessments  kept 
ahead  of  current  costs.  During  such  interim  the  operation 
of  an  assessment  company  issuing  contracts  inherently  irre- 
sponsible and  unguaranteed,  could  be  made  profitable  to  the 
managers  in  reckless  extravagance  to  themselves  in  salary, 
and  incidental  graft,  to  end  in  the  utter  wrecking  of  the 
association. 

Even  with  the  better  type  of  assessment  companies,  when 
too  long-delayed  adjustment  was  attempted  under  the  emer- 
gency clauses  of  the  contract,  the  members  who  were  insur- 
able  withdrew  to  get  insurance  elsewhere,  leaving  behind  an 
undue  balance  of  risks  who  persisted  because  unable  to 
obtain  insurance  otherwise,  which  in  turn  greatly  increased 
the  mortality  and  called  for  further,  and  what  history  has 
too  often  shown  to  be  prohibitory,  adjustments. 

The  history  of  assessmentism  has  been  a  history  of  dis- 
appointment, attested  in  living  voices  of  disappointed 
patrons,  victims  to  its  false  economics  or  open  dishonesty, 


The  Three  Systems  of  Life  Insurance.  89 

and  most  sadly  evidenced  in  the  thousands  of  survivors  of 
defunct  assessment  institutions  left  without  insurance  and 
without  the  conditions  of  health  and  youth  that  would  make 
them  acceptable  for  insurance.  Assessmentism  has  dwindled 
with  an  appreciation  of  its  dangers,  and  there  is  no  remedy 
to  suggest  for  it  save  that  of  legal  extinction.  Iowa,  the 
scene  of  so  much  assessment  distress  in  the  past,  has  taken 
the  initiative  in  preventing  by  statute  the  formation  of  any 
further  assessment  life  associations  or  corporations.  Senti- 
ment elsewhere  approves  the  move  of  Iowa,  and  it  is  to  be 
hoped  will  give  it  further  force  in  other  State  laws. 

Are  there  any  present-day  exceptions  in  assessmentism  ? 
No;  so  far  as  the  fallacy  of  the  system  is  concerned,  it  is 
present  in  every  company  operating  under  assessment  laws. 
One  conspicuous  example  of  a  large  assessment  corporation 
conducted  in  more  conservative  fashion,  with  integrity  and 
even  ability,  is  frequently  pointed  as  an  exception,  but  in  the 
minds  of  scientific  insurance  men  the  circumstances  that  are 
exceptional  with  this  company  are  not  sufficient  to  save  it  as 
an  assessment  corporation  if  it  continues  to  operate  without 
modification  of  its  plans. 

Assessment  companies  and  their  management  are  not  to 
be  uniformly  condemned  for  dishonesty  or  for  willing  pur- 
pose to  deceive  the  policyholders,  for  there  were  many  zeal- 
ous promoters  of  assessmentism  who  were  carried  away  by 
its  fallacies,  in  more  or  less  honest  delusion.  Of  this  number 
there  were  both  those  whose  institutions  went  to  the  natural 
doom  of  disintegration  or  are  now  plodding  along  in  insur- 
ance despair,  while  an  exceptional  few  who  early  recognized 
the  limitations  and  fallacies  of  assessmentism,  have  suc- 
ceeded in  reincorporating  under  old-line  laws  upon  a  scien- 
tific basis. 

Fraternal  insurance,  like  assessmentism,  is  unguaranteed 


90  The  Romance  of  Life  Insurance. 

inherently  and  legally,  and  of  necessity  must  be  unguar- 
anteed in  the  absence  of  adequate  rates  and  reserve  accu- 
mulations to  permit  of  guaranteed  contracts.  Unlike 
assessmentism,  however,  the  fraternal  orders  and  fraternal 
beneficiary  associations  that  live  up  to  their  name,  have  a 
bond  of  fraternity  that  lends  a  force  for  endurance  and  an 
ability  to  survive  adjustment  not  present  in  assessmentism. 
To  this  general  statement  there  are  many  exceptions,  as 
some  fraternal  orders  are  merely  deceitful  attempts  to  prac- 
tice assessmentism  under  the  easier  guise  of  fraternalism, 
and  are  in  reality  neither  an  order  nor  fraternal. 

Fraternal  societies  may  be  said  to  be  the  natural  sequence 
of  the  "  Pass  the  Hat "  contribution  plan.  Disposition  to 
provide  in  a  way  for  the  dependents  of  a  friend  created 
organizations  for  this  purpose  in  Funeral  Benefit  Associa- 
tions and  Beneficiary  and  Friendly  societies.  Originally 
members  of  these  societies  contributed  upon  the  death  of  a 
member.  As  the  societies  evolved,  larger  concepts  of  equities 
were  introduced,  fixing  limits  as  to  the  amount  of  contribu- 
tion. The  only  stipulation  imposed  upon  these  fraternal 
orders  by  law  was,  and  is  now  in  most  places,  that  no  death 
benefit  be  promised  in  excess  of  an  amount  realizable  by  one 
assessment  upon  all  members.  The  inadequacy  of  this  con- 
dition as  a  criterion  of  solvency  is  apparent  in  its  mere 
statement. 

The  fraternal  orders  later  amended  their  plans  to  include 
stipulated  assessments  at  various  periods,  which  assessments 
and  dues  constituted  the  premium  income,  together  with  the 
faculty  to  levy  extra  assessments  when  needed.  Differences 
in  death  rate  brought  about  through  differences  in  age  were 
not  properly  recognized,  and  in  some  cases  not  recognized  at 
all.  The  older  membership  have  shown  a  selfishness  to  pre- 
serve this  unfair  advantage,  and  avoid  readjustments  even  at 


The  Three  Systems  of  Life  Insurance.          91 

the  cost  of  final  ruin  of  the  order  —  a  condition  that  has 
reacted  in  making  the  orders  that  much  more  unattractive 
to  the  young  new  entrant. 

Continued  misrepresentation  of  old-line  life  insurance 
as  being  insurance  at  excessive  cost,  and  repeated  reiteration 
of  the  fallacies  of  "  new  blood  "  and  lapsation  gains,  have 
left  the  membership  indisposed  to  accept  necessary  increases 
in  rates  to  attain  permanency  of  organization.  Moreover  the 
salaried  officers  of  many  of  the  orders  are  in  similar  position 
to  the  former  assessment  managers,  insomuch  as  they  have 
attained  their  positions  and  their  emoluments  of  office 
through  claims  of  cheaper  insurance  service  which  can  not 
endure  beyond  an  adequate  increase  in  insurance  cost. 

Fraternal  insurance  has  a  record  behind  it  in  millions  of 
dollars'  insurance  paid  to  claimants  —  a  record  unfortunately 
marred  in  the  failure  of  numerous  large  orders  and  the  loss 
of  insurance  protection  to  thousands  of  needy  dependents. 
The  future  of  fraternal  insurance  appals  with  its  power  of 
disaster.  With  its  eight  billion  of  outstanding  insurance  it 
presents  in  volume  ten  times  the  problem  of  assessmentism, 
and  equals  four-sevenths  of  the  business  in  force  with  old- 
line  companies,  inclusive  of  industrial  business. 

The  Royal  Commission  of  the  Canadian  Parliament,  in 
the  report  on  fraternal  societies  made  last  year,  sums  up  the 
situation  in  the  following  way : 

In  the  first  place,  the  insuring  of  human  lives  is  a  business,  and 
can  not  be  successfully  carried  on  by  selling  the  commodity  in  which 
it  deals  at  less  than  cost.  In  the  next  place,  it  is  unsound  economics 
to  credit  part  of  the  price  which  one  customer  pays,  upon  the 
account  of  another  customer.  Upon  the  application  of  these  two 
propositions  depends  the  solution  of  the  problem  presented  by  the 
history  of  these  societies.  In  so  far  as  they  have  been  selling  insur- 
ance at  less  than  its  real  cost,  in  so  far  as  they  have  been  depleting 
the  provision  made  by  one  policyholder  for  the  cost  of  his  insurance 


92  The  Romance  of  Life  Insurance. 

in  order  to  eke  out  the  inadequate  provision  made  by  another  policy- 
holder  for  the  cost  of  his  insurance,  they  have  built  upon  founda- 
tions of  sand,  and  the  edifice  must  fall.  What  does  the  evidence 
before  the  Commission  establish  in  these  two  respects? 

The  members  of  the  Independent  Order  of  Foresters,  for  exam- 
ple, who  became  members  before  the  change  in  1896,  mentioned  in 
a  former  part  of  the  report,  remained  and  still  remain  members 
upon  the  rates  of  1881.  And  the  same  observation  applies  to  all  the 
other  societies  whose  rates  have  been  so  compared. 

Even  if,  therefore,  the  present  schedules  of  rates  in  force  were 
in  themselves  adequate,  the  practice  in  the  societies  still  permits  the 
depletion  of  the  early  surplus  which  they  provide,  to  make  good  the 
losses  occasioned  by  the  insufficiency  of  the  rate  which  old  members 
pay  to  cover  the  cost  of  carrying  their  insurance. 

This  seems  to  be  a  condition  against  which  no  headway  has  yet 
been  made  in  the  societies  themselves.  The  old  members  maintain 
their  ground,  being  more  concerned  to  keep  a  firm  hold  upon  their 
own  too-cheap  insurance  than  in  the  general  welfare  of  the  societies 
at  large. 

The  Canadian  report  refers  to  the  Independent  Order  of 
Foresters  because  it  is  the  large  fraternal  order  of  Canada. 
This  company  has  its  prototype  in  numerous  similar 
organizations  domiciled  in  the  United  States,  now  facing 
the  same  general  situation.  To  test  the  soundness  of  the 
contentions  advanced  by  the  Supreme  Chief  Ranger,  the 
Royal  Commissioner  appointed  Actuary  Grant  of  the  Cana- 
dian Insurance  Department  to  investigate  the  influence  of 
lapses  or  cessations  in  lowering  the  necessary  premium  rate, 
and  also  the  sufficiency  of  the  premiums.  Mr.  Grant 
reported  that  the  large  proportion  of  lapses  occurred  within 
the  first  two  policy  years,  and  he  properly  concludes  that  this 
does  not  tend  to  lessen  but  to  increase  the  amount  necessary 
to  hold  in  reserve.  Actuary  Grant  made  four  reserve  valua- 
tions, the  lowest  of  which  —  inferentially  too  low  to  be 
reliable  —  placed  the  present  value  of  the  Independent  Order 
of  Foresters'  policy  obligations,  above  the  present  value  of 


The  Three  Systems  of  Life  Insurance.          93 

its  future  assessments  or  premiums,  as  nearly  $60,000,000, 
to  meet  which  obligation  the  society  had  an  adjusted  surplus 
of  less  than  $9,000,000. 

The  following  extract  from  the  Independent  Forester, 
the  order's  own  official  organ,  is  illuminating: 

The  suggestive  warning  conveyed  in  the  insurance  measure  now 
before  the  Canadian  Parliament  makes  it  the  duty  of  the  Supreme 
Court  to  undertake  at  once  the  solution  of  the  old  rates  problem. 

It  will,  doubtless,  be  a  surprise  to  many  of  the  old  members  to 
learn  that  they  are  likely  to  be  called  upon  to  pay  extra  assessments 
or  higher  premiums  for  the  assurance  they  are  carrying,  or  else 
have  that  assurance  cut  down  to  a  proper  relation  to  the  premiums 
they  are  paying.  They  had  become  so  accustomed  to  the  reiterated 
statement  that  they  would  never  be  called  upon  to  pay  any  higher 
rates  that  their  surprise  is,  perhaps,  natural.  But  if  they  will  only 
examine  the  elementary  factors  in  the  case  —  which  are  very  simple 
—  they  can  have  no  difficulty  in  realizing  the  necessity  for  readjust- 
ment, and  that  it  can  not  come  too  soon.  Almost  any  member  can 
calculate  for  himself  what  his  net  premium  payments  (that  is,  the 
premium  paid,  less  five  per  cent  deducted  for  management  expenses), 
with  compound  interest  at  four  per  cent,  will  amount  to  in  the  years 
he  may  reasonably  expect  to  live,  or  until  he  becomes  seventy  years 
of  age.  When  he  has  done  this,  and  finds  how  far  short  the  result 
is  of  the  sum  for  which  his  certificate  reads,  he  will  naturally  won- 
der how  the  deficiency  is  to  be  made  up ;  and  well  he  may. 

The  Modern  Woodmen  of  America,  which  boasts  of 
defeating  the  measure  for  minimum  rates  according  to  the 
National  Fraternal  Congress  Table,  received  the  following 
report  from  Major  C.  W.  Hawes,  head  clerk  of  the  order, 
in  signed  statement  to  the  executive  counsel,  under  date  of 
October  15,  1907.  Major  Hawes  reports  in  part: 

At  all  events,  the  National  Fraternal  Congress  Table  is  emphatic- 
ally the  lowest  standard  that  can  be  accepted  as  a  basis  for  rate- 
making.  A  lower  one  would  be  held  to  be  unsafe  by  every  sane 
authority,  and  would  not  for  a  moment,  in  my  judgment,  be  accepted 


94  The  Romance  of  Life  Insurance. 

by  any  State  insurance  department  having  a  due  regard  for  the 
security  of  its  insuring  and  insurable  citizens.  Even  at  that,  I  seri- 
ously question  the  safety  of  the  table  as  a  measure  of  costs  at  the 
higher  ages. 

In  my  last  official  report  submitted  to  the  Milwaukee  Head  Camp, 
I  submitted  a  valuation  of  all  insurance  outstanding  in  our  society 
on  December  31,  1904.  The  valuation  was  made  for  the  purpose  of 
ascertaining  our  liabilities  and  measuring  them  with  our  income. 
It  was  based  upon  the  National  Fraternal  Congress  Table  and  four 
per  cent  interest  —  the  lowest  standard  table  and  the  very  highest 
interest  assumption  that  any  pretense  of  safety  would  justify. 

That  valuation  showed  that  at  the  close  of  the  year  1904  we  had 
$1,136,678,500  insurance  in  force;  that  we  were,  on  the  tabular  and 
interest  assumptions  noted,  paying  for  but  $466.069,383  insurance 
(assuming  that  we  were  collecting  twelve  assessments  per  year  on 
our  present  rates),  and  that  $670,609,117  insurance  was  wholly 
unprovided  for.  That  is  to  say,  we  were  paying  for  but  $399  of  each 
$1,000  insurance  in  force;  $601  of  each  $1,000  being  a  worthless 
promise  to  pay,  as  far  as  our  future  ability  to  pay  was  concerned. 

According  to  their  own  official  organ,  The  Modern 
Woodman,  this  order  fought  and  defeated  the  enactment  of 
minimum  fraternal  rates  in  the  State  of  New  York,  pro- 
posed in  the  Volk  Bill,  offered  at  Albany  in  the  1908  session. 
The  Modern  Woodman  comments : 

When  a  little  coterie  of  officers  of  other  societies  which  can  not 
compete  with  the  Modern  Woodmen  of  America  united  in  putting 
a  foolish  resolution  through  the  National  Fraternal  Congress,  they 
were  at  first  admonished  against  doing  so  by  the  representatives  of 
the  Modern  Woodmen  of  America.  Then,  when  they  persisted  in 
the  attempt  to  embarrass  this  society,  its  representatives  told  them 
they  could  not  secure  the  enactment  of  their  resolution  into  law  in 
a  single  State  in  which  Modern  Woodmen  of  America  were  doing 
business.  They  could  muster  enough  votes  to  pass  the  resolution, 
but  when  they  attempted  to  secure  the  passage  of  their  law  in  New 
York  they  found  that  the  Modern  Woodmen  had  right  for  their 
might,  and  in  the  fight  the  once  bold  majority  ran  like  whipped 
curs,  and  they  accepted  amendments  which  made  them  appear  ridic- 
ulous in  view  of  the  bold  stand  they  had  taken  at  Buffalo. 


The  Three  Systems  of  Life  Insurance.          95 

Withal,  the  National  Fraternal  Congress  Table  is  greatly 
lower  than  the  death  rates  as  given  by  the  American  Experi- 
ence Table,  which  is  the  State  standard  generally  adopted  for 
old-line  life-insurance  companies.  As  a  makeshift  for  pass- 
ing to  a  higher  mortality  table  later,  the  National  Congress 
Table  has  more  to  recommend  it  than  as  a  measure  of  the 
mortality  to  be  expected  among  the  fraternal  orders.  This 
is  apparent  in  the  report  of  the  actuary  on  the  experience  of 
the  Endowment  Rank  Knights  of  Pythias,  whose  mortality 
experience  was  analyzed  to  find  that  "  The  experienced  mor- 
tality is  shown  to  be  85.53  per  cent  of  the  expected  by  the 
American  Experience  Table  of  Mortality,  and  109.35  Per 
cent  of  the  expected  by  the  National  Fraternal  Congress 
Table." 

The  National  Convention  of  State  Insurance  Commis- 
sioners at  its  meeting  in  Washington  in  1906,  heard  a  report 
from  its  committee  on  fraternal  insurance,  recommending 
that  minimum  rates  be  based  upon  the  American  Experience 
Table  of  Mortality,  with  interest  at  the  rate  of  four  per 
cent.  The  report  pointed  out  that  — 

By  far  the  greater  part  of  the  assets  of  the  old-line  companies 
represent  reserve,  that  is,  the  amounts  paid  by  the  policyholders 
during  the  early  life  of  the  policy,  to  provide  for  the  deficiency  of 
these  same  policyholders'  payments  when  they  shall  have  reached  a 
more  advanced  age.  The  fraternal  societies,  with  about  four-fifths 
insurance  in  force  as  the  old-line  companies,  have  as  total  assets 
less  than  the  policy  claims  for  a  single  year.  This  condition  is  an 
alarming  one  to  any  friend  of  fraternal  insurance,  and  should  be  of 
peculiar  interest  to  every  member  of  these  societies  and  to  every 
official  whose  duty  it  is  to  supervise  them. 

The  commissioners  voted  this  recommendation: 

We  urge  the  enactment  of  laws  providing  as  follows : 

I.     No  society  shall  be  organized  in  or  admitted  to  any  State 


96  The  Romance  of  Life  Insurance. 

after  July  I,  1907,  that  does  not  collect  adequate  rates,  according  to 
the  above-mentionel  standard. 

2.  All  societies  doing  business  in  any  State  should  collect  ade- 
quate rates  from  new  members  admitted  after  January  i,  1909. 

3.  Members  paying  inadequate  rates  should  be  placed  in  a  class 
by  themselves,  but  should  be  permitted  to  transfer  to  the  adequate 
rate  class,  at  attained  ages,  without  expense  or  medical  examination, 
within  two  years,  and  the  funds  of  the  two  classes  should  be  kept 
separate. 

The  history  of  the  Royal  Arcanum  illustrates  the  diffi- 
culty of  making  a  successful  adjustment  of  rates  in  an  order 
that  has  achieved  popularity  by  misrepresenting  the  cost  of 
insurance.  While  the  rates  adopted  in  1905  were  not  exces- 
sive, in  fact  so  low  that  further  adjustment  will  probably  be 
necessary  before  long,  the  order  has  none  the  less  lost  pres- 
tige and  membership  from  that  date.  The  three  hundred  and 
five  thousand  members  which  it  had  on  December  31,  1904, 
instead  of  preserving  the  ratio  of  increase,  have  fallen 
steadily  away  to  a  showing  of  two  hundred  and  forty  thou- 
sand on  December  31,  1907. 

Until  the  public  realizes  that  there  is  no  magic  in  the 
words  "assessmentism"  and  "  f raternalism  "  by  which  insur- 
ance results  can  be  conjured  into  being,  not  attainable  upon 
applied  scientific  principles,  assessmentism  and  fraternalism 
will  continue  to  take  money  for  the  most  worthless  of  all 
considerations  —  for  insurance  that  does  not  insure.  The 
very  name  "  insurance  "  implies,  if  anything,  security  and 
certainty,  and  when  an  order  or  a  corporation  fails  to  meas- 
ure up  to  a  standard  that  insures  future  security,  its  payment 
of  death  claims  for  a  few  years  is  but  the  paltry  bait  that 
serves  ultimately  to  fleece  credulous  patrons. 

The  difficulty  of  obtaining  legislative  correction  is 
chargeable  to  the  enormous  political  power  which  these  fra- 
ternals  are  able  to  swing.  An  amazing  condition  is  that  a 


The  Three  Systems  of  Life  Insurance.          97 

so-called  "  fraternal  "  —  a  fraternal  that  is  fraternal  in  name 
only,  and  worse  than  unfraternal  in  lack  of  equity  and  abuse 
of  confidence  of  its  members  —  can  yet  inspire  a  feeling  of 
loyalty  to  the  order  which  will  cause  its  members  to  act 
in  its  name  against  their  own  interest. 

There  are,  of  course,  real  fraternal  orders,  and  these 
orders  have  done,  in  common  with  those  that  are  less  fra- 
ternal and  decidedly  reprehensible,  enormous  good  in  the 
payment  of  claims  to  worthy  beneficiaries.  It  is  not  neces- 
sary to  lay  down  a  rule  for  gauging  the  fraternal  spirit  of 
an  order.  Any  member  of  a  fraternal  order  knows  himself 
how  much  the  lodge  work  amounts  to,  how  much  fraternal 
element  there  is  in  the  order,  and  how  much  remains  of  a 
pure  assessment  life-insurance  proposition.  In  lack  of  a 
brotherhood  that  would  give  force  to  the  original  "  Pass  the 
Hat"  idea  of  fraternalism,  no  fraternal  order  not  main- 
taining scientific  reserves  and  charging  premium  rates  ade- 
quate for  so  doing  can  be  said  to  be  secure.  In  ratio  as  this 
spirit  dwindles,  the  orders  approach  assessmentism  pure  and 
simple,  with  all  its  unblushing  blunders  and  fatal  fallacies. 

Members  of  fraternals  which  exist  because  of  real  fra- 
ternity, where  the  insurance  departments  are  only  incident- 
ally associated  with  the  order,  or  else  wholly  disassociated, 
should  jealously  guard  the  good  name  of  their  order  from 
assessment-insurance  prostitution.  Unworthy  assessmentism 
has  too  often  gratuitously  used  such  honored  names  as 
Masonic,  Pythian  and  Odd  Fellows  as  pennants  to  float 
above  their  unseaworthy  craft. 

Apropos  of  this  thought  William  C.  Swain,  Grand 
Master  Mason  of  Wisconsin,  remarks  of  Masonic  insur- 
ance: 

Masonry  is  older  than  any  insurance,  and  a  society  unique  in 
itself,  outside  of  any  business  organization.  Life  insurance  is  an 


98  The  Romance  of  Life  Insurance. 

established  business,  and  there  is  no  more  reason  for  Masons 
engaging  in  it  than  for  them  to  engage  in  manufacturing  or  any 
other  business. 

A  consideration  of  these  three  systems  of  life  insurance 
must  result  in  increased  appreciation  of  the  necessities  of 
insurance  that  has  piled  up  the  volume  of  contracts  issued 
in  its  name,  and  particularly  emphasize  the  soundness  of  old- 
line  life  insurance.  Insurance  is  not  a  matter  of  to-day  pr 
to-morrow,  but  it  is  a  matter  of  death,  which,  while  it  may 
occur  either  to-day  or  to-morrow,  mercifully  may  be  deferred 
to  the  distant  future.  The  business  of  life  insurance  is  to 
pay  claims  when  they  occur,  without  limitation  as  to  when 
this  time  will  be. 

In  this  purpose  the  present  old-line  life-insurance  com- 
panies have  received  premiums  since  organization  amounting 
to  $6,306,950,440 ;  as  an  account  of  their  stewardship  these 
companies  have  paid  back  to  policyholders  in  claims,  divi- 
dends, surrender  values  and  otherwise,  $3,941,157,153,  and 
hold  in  present  assets  for  the  protection  of  policyholders,  and 
in  reserves  that  insure  the  future  of  their  contract,  $2,669,- 
153,593,  making  a  total  of  $6,610,310,746.  This  actually 
means  that  old-line  companies  have  paid  to  policyholders, 
and  hold  to  their  credit,  more  than  $300,000,000  in  excess  of 
the  premiums  received,  which,  giving  answer  for  the  effi- 
ciency and  economy  of  old-line  life  insurance,  establishes  it 
as  the  most  stable  financial  institution  in  the  world's  affairs. 

Assessmentism  has  failed  to  give  an  excuse  for  its  exist- 
ence. Comparisons  with  old-line  life  insurance  conjured  up 
to  furnish  this  excuse  are  disproven  by  fact  and  history. 
Law  to  prevent  the  further  plunder  of  the  public  in  the 
formation  of  new  assessment  companies  is  an  urgent  neces- 
sity. Laws  should  be  enacted  where  necessary  to  permit  the 
reorganization  of  present  assessment  companies  on  old-line 


The  Three  Systems  of  Life  Insurance.  99 

plans,  and  where  these  companies  fail  to  take  advantage  of 
such  laws  they  should  be  subjected  to  other  enactments  com- 
pelling rigorous  supervision  and  the  levying  of  assessments 
from  time  to  time  that  appear  necessary  to  the  interest  of  the 
"  last  man." 

Political  difficulties  in  enacting  proper  laws  to  regulate 
fraternal  beneficiary  orders  should  be  overcome  by  the  mem- 
bers of  these  orders  themselves.  It  is  to  the  distinct  dis- 
advantage of  these  orders  that  the  laws  on  the  statute  books 
of  the  various  States,  though  calling  for  rigorous  super- 
vision of  old-line  life  insurance,  fail  to  compel  proper  rating 
and  accumulation  of  credits  and  reserves  among  the  fra- 
ternal orders.  As  the  laws  stand  to-day  in  many  States,  a 
fraternal  order  can  and  must  be  admitted  by  the  mere  pay- 
ments of  a  small  fee.  Here  State  supervision  practically 
ends. 

In  life  insurance,  whether  old-line  life  insurance,  fra- 
ternal insurance  or  assessment  insurance,  two  and  two  make 
no  more  than  four,  and  that  the  system  that  proposes  to 
increase  the  sum  of  these  co-equal  factors  by  means  of  a 
safety  or  emergency  clause  is  unsound  by  confession. 

Historic  reference  during  the  past  generation  to  the 
magnificent  record  of  the  old-line  companies  in  moneys  paid 
and  moneys  accumulated,  to  lack  of  failure,  in  a  generation 
of  any  company  operating  continuously  on  the  old-line  plan, 
causes  the  three  systems  of  life  insurance  to  simmer  down 
to  one.  Old-line  life  insurance  is  entitled  to  the  best  that  the 
word  "  system  "  can  be  made  to  convey ;  assessmentism  has 
merited  a  sentence  of  legal  death;  and  fraternalism  a  sus- 
pended sentence,  leaving  it  to-day  on  uncertain  parole. 


CHAPTER   VII. 
SCIENCE  AND  HUMAN  LIFE. 

RUSKIN  well  said  that  "  the  work  of  science  is  to  sub- 
stitute facts  for  appearances  and  demonstrations  for 
impressions."  Life  insurance,  by  this  Ruskinian  dictum, 
can  claim  yeoman's  service  in  a  department  of  science  of 
first  interest  to  us  all,  the  statistical  study  of  human  life. 

Possibly  in  no  other  department  of  scientic  investigation 
are  impressions  and  appearances  more  deceptive,  or  pro- 
ductive of  more  mistaken  deductions,  than  in  the  study  of 
vital  statistics  and  problems  of  human  life. 

How  many,  for  instance,  who  have  heard  the  interlocutor 
at  the  minstrel  show  repeat  his  perennial  query,  "  Do  mar- 
ried men  live  longer  than  single  men  ?  "  and  received  the 
end-man's  flippant  response,  "  No,  it  only  seems  longer !  " 
understand  that  here  is  propounded  an  actuarial  question  of 
scientific  import,  susceptible  of  statistical  reply,  which  upon 
analysis  displays  the  layman  prone  to  mistake  cause  and 
effect. 

Answering  yes  to  this  question,  which  in  all  seriousness 
can  be  assumed  to  be  the  case  statistically,  the  deduction 
reached  by  the  actuarial  unschooled  will  be  that  married  life 
and  the  marriage  relation  is  conducive  to  longevity. 
Whether  this  is  the  case  or  not,  or  whether  or  no  the  marital 
relation  properly  fulfilled  is  more  conducive  to  longevity 
than  the  continence  of  the  celibate,  remains  statistically 
unproven.  Independent  of  all  other  causes,  married  men 

should  live  longer  than  single  because  of  the  strong  element 

100 


RlCHARD  PRICE,  compiler  of  the  Northampton  Mor- 
tality Table,  the  most  reliable  and  scientific  of  early  mortal- 
ity tables. 


DR 


AND  HL 

well  said  that  sub- 

:ts  for  appears 
'     Life  um, 

in  a  ci 
I,  the  statistical  stud> 

department  of  scientic  investigation 
is  and  appearances  more  deceptive,  or  pro- 

han  in  the  study  of 
:  Ip^^ltqaio^i^^^if^AHOlH 

di  fww  trbai^AfeTE  Rlfe^locutor 
nnial  queskUf^tio  mar- 


can  be 

reached  by  : 

and    the    n 

Whether  thi  >r  wl 

relation  properly   fulfill 

than  the  continenc  libat 

unproven.     Indeper  othe 

should  live  longer  than  caus 

100 


lion 

i  ied  life 

longevity. 

>  the  marital 

to  longevity 

statistically 

arried  men 

strong  element 


.  '        , ,      ,    , 

:,  ,  -V-  :     '•'•••,  ,':'.'  i'-i  :/' 


DR.  RICHARD  PRICE. 


Science  and  Human  Life.  103 

of  selection  which  deters  the  weakling,  the  infirm  and  the 
diseased  from  marriage,  though  matrimonially  inclined,  and 
in  itself  accounts  for  a  subdivision  along  lines  of  physical 
fitness  that  makes  for  longer  life  in  the  married  man. 
Analogously,  policemen  will  show  marked  signs  of  longevity, 
not  because  their  vocation  is  healthful  or  lacking  in  hazard, 
but  because  of  their  selection  by  condition  of  superior  phys- 
ical fitness. 

If  the  hope  of  those  who  are  laboring  now  for  marriage 
laws  that  would  more  or  less  rigidly  refuse  licensed  mar- 
riage relation  where  a  condition  or  taint  of  physical  or 
mental  disqualification  exists  is  realized,  it  would  serve  to 
further  increase  the  relative  longevity  of  married  men  by 
keeping  in  the  ranks  of  the  single  not  only  those  of  the  unfit 
eliminated  by  self-selection,  but  adding  as  well  a  quota  from 
that  large  class  now  indulging  in  matrimony  to  the  injury 
and  misery  of  the  human  race. 

To  get  a  truer  concept  of  the  labors  of  actuarial  science, 
which  is  incidentally  doing  much  for  the  cause  of  mankind 
beyond  promoting  the  business  of  life  insurance,  view  this 
problem  in  another  light,  and  uncover  another  popular  illu- 
sion. If  the  relative  longevity  of  the  married  man  and  the 
single  man  was  determined  by  an  examination  of  ages  at 
death,  it  would  at  once  be  seen  that  the  age  at  death  of  the 
married  man  would  be  greater  than  that  of  the  single  man 
because  of  the  average  age  at  which  a  man  enters  into  mar- 
riage. A  man  of  sixty,  for  instance,  has  a  much  better 
chance  of  attaining  age  sixty-five  than  the  general  population 
under  sixty,  which  would  average  about  half  that  age ;  and 
in  exactly  the  same  way  the  married  man's  age  at  death  will 
be  greater,  not  as  a  necessary  consequence  of  lower  mor- 
tality, but  simply  because  he  only  comes  under  observation 
after  he  has  reached  the  mature  years  of  wedlock. 


104  The  Romance  of  Life  Insurance. 

Again,  British  peers  attain  by  heritage  a  rank  which  of 
necessity  must  come  to  them  at  maturer  years,  with  the 
result  that  their  ages  at  death  will  average  higher  than  the 
ages  at  death  of  the  general  population,  just  as  the  average 
age  of  the  living  peerage  would  to-day  average  higher  than 
the  average  age  of  the  living  population.  For  this  reason  no 
conclusions  based  on  ages  at  death,'  or  even  average  age  of 
the  men  living  in  any  profession  or  business,  can  be  used  as 
a  criterion  without  giving  full  weight  to  the  ages  upon 
which  these  men  enter  their  different  vocations. 

Variations  in  mortality  because  of  habitat,  occupation, 
race,  sex  and  so  forth,  are  all  incidental  in  the  study  of 
human  life  to  the  underlying  law  of  mortality,  and  any 
system  that  attempts  to  make  comparisons  without  recog- 
nizing a  law  of  mortality  that  takes  into  full  account  the 
relationship  of  age  upon  the  death  rates  must  of  necessity 
fall  into  error. 

While  the  lifetime  of  any  individual  is  a  most  uncertain 
event,  the  number  of  deaths  that  will  occur  among  huge 
aggregations  of  individuals  of  the  same  age  can  be  pre- 
dicted with  approximate  accuracy.  It  is  therefore  possible 
to  build  up  a  mortality  table  from  a  large  number  of  observa- 
tions, showing  with  great  fidelity  the  probable  number  of 
deaths  at  the  different  ages.  Tables  of  this  sort  have  been 
faithfully  compiled  for  life-insurance  purposes  from  life- 
insurance  risks,  to  supply  a  standard  for  life-insurance  cal- 
culations and  a  basis  for  measuring  mortality  among  selected 
lives. 

Census  reports  and  general  population  statistics,  when 
supplemented  by  statistics  of  death,  supply  tables  for  meas- 
uring the  mortality  of  the  general  population.  Tables  com- 
puted from  the  statistics  of  life-insurance  companies  natu- 
rally show  lower  death  rates,  because  these  lives  have  been 


Science  and  Human  Life.  105 

selected  by  medical  examination  to  include  only  the  better 
class.  Life-insurance  tables  portray  more  faithfully  the 
mortality  among  selected  lives  than  do  census  tables  for  the 
general  population,  because  of  the  loss  of  accuracy  in  the 
cruder  methods  and  less  authentic  information  of  the  census 
gatherers. 

All  investigations  of  sufficient  volume  to  be  reliable 
develop  tables  that  bring  out  the  minimum  of  mortality  to 
be  between  the  ages  of  ten  and  twelve,  which  minimum  is 
reached  by  a  gradual  decrease  in  the  mortality  from  birth, 
and  from  which  minimum  the  mortality  rate  gradually 
increases  through  adult  life. 

From  a  reliable  table  of  mortality  adapted  to  the  circum- 
stances, it  is  therefore  possible  to  foretell  with  great  fidelity 
the  number  of  people  to  die  at  the  different  ages,  from  a 
large  number  born  alive.  Thus,  by  the  American  Experi- 
ence Table  of  Mortality,  out  of  143,819  live  births  22,249 
die  the  first  year,  a  death  rate  of  15.47  Per  ifOOO.  Deducting 
the  number  that  die  the  first  year  from  the  number  born, 
there  remain  at  the  beginning  of  the  second  year  121,570 
lives,  of  whom  7,719  will  die  before  the  end  of  the  second 
year,  making  a  death  rate  of  6.35  per  1,000.  Deducting  each 
year  the  number  that  die  during  that  year  from  the  number 
alive  at  the  beginning  of  the  year,  gives  the  number  remain- 
ing alive  at  the  next  succeeding  age,  and  must  ultimately 
bring  the  mortality  table  to  a  conclusion.  It  is  convenient 
to  close  a  mortality  table  within  reasonable  limits,  and  with 
the  American  Experience  Table  age  ninety-five  is  fixed 
arbitrarily  as  such  limit. 

The  number  of  deaths  per  1,000  lives  exposed  at  quin- 
quennial ages,  starting  from  the  minimum  mortality  at  age 
ten,  are,  according  to  the  American  Experience  Table : 


106  The  Romance  of  Life  Insurance. 

Age.  Age. 

10 749  50 1378 

15 7.63  55 i8.57 

20 7.8l  60 26.69 

25 8.07        65 40.13 

30 8.43        70 61.99 

35 8.95  75 94.37 

40 979  80 144.46 

45 11.16  85 235.55 

General  population  mortality  would,  of  course,  include 
diseased  and  impaired  lives,  and  give  death  rates  appreciably 
higher.  No  two  mortality  experiences,  even  on  the  same 
class  of  lives,  would  show  exactly  the  same  death  rates,  and 
when  the  lives  are  differently  circumstanced  as  regards  race, 
occupation,  nativity  or  residence,  the  rates  would  vary  more 
or  less  radically.  Among  the  general  population  a  segrega- 
tion of  the  whites  from  the  negroes  would  show  the  negro 
death  rate  to  be  greatly  in  excess  of  the  whites,  nearly  twice 
as  great  at  the  infantile  and  younger  ages,  and  much  greater 
throughout  than  the  white  mortality. 

Underneath  all  properly  compiled  tables,  however,  looms 
out  a  basic  trend  of  mortality  which  follows  more  or  less 
closely  the  gradation  shown  in  the  American  Experience 
Mortality  Table.  Just  as  the  little  pebble  and  the  huge 
boulder  fall  in  accordance  with  the  same  law  of  gravitation, 
though  with  striking  forces  that  differ  with  their  mass,  so 
does  there  appear  a  great  underlying  law  of  mortality  which, 
if  not  expressible  with  the  mathematical  precision  of  the  law 
of  gravitation,  is  none  the  less  well  defined.  Perhaps  the 
most  dramatic  and  even  the  most  uncanny  delves  in  the 
whole  field  of  science  has  been  the  search  for  a  law  of  mor- 
tality as  mathematically  absolute  as  those  governing  the 
great  natural  forces  of  gravity,  light  and  sound. 

A  scientist  named  Demoivre,  in  1725,  published  the  first 


Science  and  Human  Life.  107 

mathematical  mortality  hypothesis  in  the  dictum  that  "  We 
may  consider  that  whatever  be  that  law  which  is  observed 
by  nature  in  the  perpetual  decrements  of  human  life,  that 
law  must,  conformably  to  all  the  other  laws  of  nature,  be 
such  as  to  proceed  regularly  at  least  .for  some  short  intervals 
of  time."  Demoivre  applied  this  law  over  the  interval  from 
age  twelve  to  age  eighty-six,  by  assuming  that  of  seventy- 
four  persons  alive  at  age  twelve  one  would  die  each  year, 
the  number  living  at  age  thirteen  therefore  being  seventy- 
three,  at  age  fourteen  seventy-two,  and  at  age  eighty-five 
one,  the  last  survivor,  who  would  die  during  the  last  year. 
The  number  of  lives  exposed  each  year  would  therefore  be 
reduced  by  one,  and  the  probability  of  dying  consequently 
increased.  Thus  the  probability  of  dying  at  age  twelve  was 
one  out  of  seventy- four  or  i%  per  cent,  whereas  the 
probability  of  dying  at  age  eighty-five,  when  there  was  only 
one  alive,  was  one  out  of  one,  or  one  hundred  per  cent. 

Demoivre's  hypothesis  assumed  a  law  of  mortality,  and 
not  an  unalterable  table  of  mortality.  The  same  law  applied 
under  different  circumstances  will  produce  different  results. 
Demoivre's  law  was  a  law  of  equal  decrements  of  human 
life,  and  by  selecting  a  different  number  of  lives  or  a  differ- 
ent age  to  start  with,  or  a  different  decrement  than  one,  or  a 
different  span  of  years  than  seventy-four,  the  resultant 
mortality  rates  would  differ  though  the  law  remains  con- 
stant. 

In  searching  for  a  law  of  mortality,  the  investigators  did 
not  assume  at  any  time  fixed  rates  of  mortality,  realizing 
that  a  change  of  circumstances  would  produce  changes  in  the 
mortality,  but  not  such  changes  as  would  not  follow,  as  they 
hoped,  the  basic  law,  and  thus  be  displayed  in  mathematical 
expression  of  the  same  form. 

The  work  of  Demoivre  became  a  matter  of  later  study  to 


108  The  Romance  of  Life  Insurance. 

Benjamin  Gompertz,  a  member  of  the  Royal  Society.  He 
scientifically  analyzed  the  causes  of  death  to  be:  first, 
"  Chance,  without  previous  disposition  to  death  or  deteriora- 
tion," for  which  the  intensity  of  mortality  may  be  said  to  be 
constant;  secondly,  deterioration  or  increased  inability  to 
withstand  destruction  by  assuming  "  the  average  exhaustion 
of  a  man's  power  to  avoid  death  to  be  such  that  at  the  end  of 
equal  infinitely  small  intervals  of  time  he  lost  equal  portions 
of  his  remaining  power  to  oppose  destruction,  which  he  had 
at  the  commencement  of  these  intervals,"  for  which  second- 
ary cause  the  intensity  of  mortality  increases  in  geometrical 
progression. 

While  Gompertz  divided  the  causes  of  mortality  into  two 
classes,  yet  in  composing  his  formula  he  included  factors 
that  covered  only  the  second  cause,  and  assumed  that  the 
force  of  mortality  increased  in  geometrical  progression. 
Makeham,  a  later  student  of  the  subject,  corrected  this 
omission  in  Gompertz'  formula,  and  afterward  elaborated 
the  mathematical  formula  for  obtaining  the  force  of  mor- 
tality by  adding  to  the  geometrical  progression  which  repre- 
sented the  deterioration  or  increased  inability  to  withstand 
destruction,  which  follows  in  adults  from  increase  in  age,  a 
constant  to  represent  the  first  cause  of  death  enumerated  by 
Gompertz,  namely,  that  death  may  be  the  consequence  of 
chance  without  previous  disposition  to  death  or  deteriora- 
tion. 

The  mathematical  application  of  Makeham's  law  of  mor- 
tality is  too  intricate  for  popular  description.  It  is  sufficient 
to  state  that  just  as  Demoivre's  mathematical  law  of  equal 
decrements  may  be  made  to  represent  with  rough  accuracy, 
within  a  limited  span  of  life,  the  mortality  rates  compiled 
from  observations  by  supplying  suitable  factors  of  decre- 
ment, so  can  Makeham's  formula  be  applied,  using  factors 


Science  and  Human  Life.  109 

deduced  from  observations,  to  reproduce  a  mathematical 
table,  the  rates  of  mortality  of  which  will  closely  approx- 
imate at  the  different  ages  the  mortality  shown  in  the  orig- 
inal data,  and  at  the  same  time  offer  innumerable  advantages 
in  calculation  through  following  a  mathematical  law.  Some 
experiences,  however,  do  not  appear  to  lend  themselves  to 
mathematical  reproduction  in  mortality  tables,  that  will  fol- 
low with  sufficient  accuracy  the  original  observations.  All 
mathematical  efforts  have  failed  'to  reproduce  directly  with 
sufficient  fidelity  mortality  rates  at  the  ages  of  extreme 
youth  and  old  age. 

Actuary  Arthur  Hunter  has  Makehamized  the  American 
Experience  Table  by  application  of  Makeham's  mathematical 
law  of  mortality,  to  reproduce  closely  the  death  rates  of  the 
original  table.  His  success  lies  in  the  great  skill  he  used  in 
experimenting  for  "  factors  "  from  the  original  table,  and 
the  further  fact  that  this  table  was  already  "  graduated  "  to 
remove  incidental  fluctuations  brought  about  by  the  limited 
number  of  observations  in  the  original  data. 

With  a  table  of  mortality  that  portrays  with  sufficient 
accuracy  death  rates  at  the  various  ages,  not  only  is  there 
unfolded  a  basic  law  of  mortality  and  a  true  criterion  for 
measuring  longevity,  but  at  the  same  time  a  basis  is  obtained 
from  which  probabilities  of  life  and  death  can  be  converted 
into  the  monetary  equivalents  of  life-insurance  calculations. 
Here  life  insurance  calls  into  being  the  mathematical  doc- 
trine of  probabilities,  by  means  of  which  the  chances  of 
death  at  the  different  ages  are  equated  into  premiums, 
according  to  the  amount  and  kind  of  contingency  covered 
in  the  policy. 

The  doctrine  of  probabilities  is  traced  back  to  the 
famous  Abbe  Pascal,  who,  it  is  related,  worked  his  first 
problems  at  the  importunement  of  a  French  gambler  who 


1 1 0  The  Romance  of  Life  Insurance. 

wished  to  know  the  mathematical  margins  in  a  game  of 
chance.  Abbe  Pascal's  investigations  into  the  theory  of 
probabilities  blazed  the  way  for  the  labors  of  the  great 
French  mathematician  Laplace,  who  reduced  the  most 
abstruse  and  contingent  probabilities  to  definite  mathematical 
expression.  The  computation  of  premium  and  annuity  rates 
of  varying  character  and  description,  involving  chances  of 
life  and  death  throughout  the  limits  of  the  mortality  table, 
are  computed  with  absolute  exactness.  These  computations, 
however,  are  on  the  basis  of  large  aggregates,  and  upon  this 
basis  are  mathematically  exact,  assuming  the  correctness  of 
the  mortality  table.  Upon  any  individual  basis  all  calcula- 
tions fail,  as  the  doctrine  of  probabilities  and  the  law  of 
mortality  call  for  large  averages. 

It  is  therefore  particularly  meaningless  for  a  man  to  talk 
of  his  individual  "  expectation  of  life."  This  much-abused 
expression,  "  expectation  of  life,"  means  the  average  after- 
lifetime  of  a  large  aggregate  of  persons  of  the  same  age. 
It  does  not  mean  the  number  of  years  that  one  may  expect  to 
live,  because  in  accordance  with  the  mortality  table  every 
man  may  expect  to  live  any  number  of  years  to  the  table 
limit.  Both  the  mortality  table  and  the  doctrine  of  probabil- 
ities accord  him  a  chance  of  living  to  the  end  of  the  table, 
exactly  as  he  is  accorded  commensurate  chance  of  dying 
during  the  current  year.  Moreover,  the  expectation  of  life, 
being  the  average  after-lifetime  of  all  those  alive  at  the  same 
age,  changes  each  year.  At  age  thirty  the  expectation  of  life 
by  the  American  Experience  Table  is  35.33,  whereas  ten 
years  later  at  age  forty  it  is  28.18,  only  about  seven  years 
less.  Twenty  years  later  at  age  fifty,  the  expectation  of  life 
is  20.91,  less  than  fifteen  years  under  that  at  age  thirty. 

Another  popular  error  in  using  the  phrase,  "  expectation 
of  life,"  is  to  add  the  same  to  the  age  to  find  the  most  prob- 


Science  and  Human  Life.  1 1 1 

able  year  of  death.  Adding  the  expectation  to  the  age  at 
thirty  would  give  an  age  at  death  of  65.33  years.  It  would 
be  fallacious  for  a  person  thirty  years  of  age  to  conclude 
that  his  probable  age  at  death  would  be  65.33,  as  the  most 
probable  year  of  death  may  be  said  to  be  the  year  ahead  in 
which  the  most  deaths  will  occur.  Again  referring  to  the 
American  Experience  Mortality  Table,  this  is  seen  to  be 
age  seventy-three,  in  which  the  number  of  deaths  on  the 
basis  of  100,000  living  at  age  ten,  is  2,505.  Accordingly 
the  most  probable  age  at  death  for  all  under  seventy-three 
is  age  seventy-three,  and  for  all  over  seventy-three  is  their 
current  age,  as  from  that  age  on  the  death  rate  is  so  heavy 
that  the  actual  number  of  deaths  reduces  through  the  radi- 
cal reduction  in  the  number  living,  and  consequently  exposed 
to  death.  At  age  ninety-four  the  number  of  deaths  are 
only  eighteen,  because  there  are  only  twenty-one  survivors 
to  that  age,  and  the  number  of  deaths  at  age  ninety-five  are 
only  three,  because  with  the  death  of  eighteen  out  of  twenty- 
one  at  ninety-four,  only  three  remain  to  the  limiting  age. 
It  is  well  to  restate  here  that  the  mortality  at  the  last  few 
ages  may  be  said  to  be  a  mortality  of  convenience,  for  the 
purpose  of  terminating  the  table  within  workable  limits. 

Rigidly  speaking,  all  probabilities  of  life  merely  reduce 
themselves  within  the  possibilities  of  deferring  death,  death 
being  the  inevitable  conclusion  of  life  and  a  mathematical 
certainty  within  the  limits  of  the  mortality  table. 

Heroic  as  sounds  the  expression,  "  to  give  up  one's  life  " 
for  one's  country,  and  heroic  as  is  the  deed  of  giving  up  that 
which  is  incomparably  man's  greatest  human  possession,  yet 
in  scientific  analysis  it  is  a  surrender  of  an  uncertain  tenure 
of  existence  whose  ultimate  end  is  death.  Risks  of  peace  are 
only  less  in  degree  than  the  risks  of  war  —  a  fact  vividly 
portrayed  in  the  following  table  prepared  for  the  Pelican, 


1 1 2  The  Romance  of  Life  Insurance. 

the  official  organ  of  a  progressive  American  life-insurance 
company : 

Death  rate     Equivalent  risk 
Battle.  per  1,000.        in  life  —  age. 

First  Bull  Run 40.7  26  to  31 

Shiloh 42.2  30  to  35 

Seven  Pines 25.1  48  to  50 

Seven  Days   27.1  36  to  39 

Second  Bull  Run 45.4  35  to  40 

Antietam  39.7  40  to  44 

Perryville    25.6  32  to  35 

Fredericksburg  18.1  55  to  56 

Chancellorsville    20.3  42  to  44 

Gettysburg   55.5  49  to  52 

Vicksburg 42.0  42  to  46 

Stone's  River 50.0  47  to  51 

Chickamauga   47.6  23  to  29 

Chattanooga  20.5  42  to  44 

Wilderness 31.2  42  to  45 

Spottsylvania 44.3  33  to  38 

Cold  Harbor  33.0  28  to  32 

Atlanta    59-2  39  to  45 

Winchester  26.9  35  to  38 

Cedar  Creek 27.9  37  to  40 

Nashville 14.8  521053 

Probably  the  average  layman  will  be  surprised  to  learn 
that  the  mortality  among  the  participants  in  even  the  most 
bloody  battles  of  the  Civil  War  could  be  measured  by  a 
limited  space  in  the  lifetime  of  the  average  selected  risk. 

Some  few  life-insurance  companies  at  this  time  accept 
officers  of  the  army  and  navy  without  provisions  for  extra 
premiums  in  the  time  of  war,  and  without  restrictions  or 
penalty  of  any  kind  in  either  peace  or  war.  One  large  life- 
insurance  company  which  ordinarily  demands  extra  pre- 
miums for  war  hazards,  offered  to  insure  a  class  of  cadets 
recently  graduated  from  West  Point,  provided  a  certain 
large  quota  of  the  whole  would  apply,  and  actually  did 


Science  and  Human  Life.  1 1 3 

insure  this  quota  absolutely  without  restrictions  as  to  military 
or  naval  service.  The  company  argued  that  in  getting  a 
large  quota  it  maintained  an  average,  and  that  the  physical 
fitness  of  these  cadets,  who  passed  the  medical  examination 
without  exception,  was  a  counterbalancing  offset  to  any 
increase  of  risk  through  occupation  hazard.  Usually,  how- 
ever, in  America,  life-insurance  policies  are  written  to  pro- 
vide an  extra  premium  in  event  of  military  or  naval  service 
in  time  of  actual  war. 

Life-insurance  statistics  upon  occupations,  in  only  excep- 
tional cases  are  of  such  marked  character  or  such  large 
quantity  of  data  that  true  conclusions  can  be  drawn  as  to  the 
relative  longevity  of  those  engaged  in  the  different  vocations, 
after  making  due  allowance  for  the  mitigating  circumstances 
of  being  otherwise  above  the  average  risk,  which  is  usually 
the  requirement  from  applicants  in  occupations  likely  to 
show  unfavorably.  Certain  classes,  however,  such  as  the 
clergy,  for  extreme  low  mortality,  and  those  engaged  in  the 
sale  and  manufacture  of  intoxicants,  for  high  mortality, 
show  results  that  justify  absolute  conclusions.  For  example, 
the  mortality  of  Presbyterian  clergymen  has  been  exhaust- 
ively investigated  both  in  America  and  in  Scotland,  where 
the  unanimity  of  result  justifies  the  most  absolute  statement 
as  to  the  low  mortality  of  Presbyterian  clergymen. 

A  correct  measurement  of  the  mortality  in  the  different 
classes  of  the  general  population  calls  for  a  degree  of  census 
accuracy  and  thoroughness  not  yet  attained,  certainly  not  in 
American  census-taking.  The  same  statement  qualifies  in 
more  or  less  degree  all  other  tables  of  the  United  States 
Census  Bureau.  S.  N.  D.  North,  the  able  director  of  the 
census,  who  is  laboring  valiantly  for  efficient  and  effective 
census-taking,  admits  and  deplores  the  lack  of  thoroughness 
of  the  present  system. 


114  The  Romance  of  Life  Insurance. 

Only  by  a  succession  of  census  comparisons,  all  of  which 
are  equally  dependable,  can  confirmation  be  had  upon  crucial 
questions  of  vital  statistics.  There  seems  a  general  willing- 
ness to  believe  that  modern  hygiene,  sanitation,  medicine  and 
surgery  has  effected  increase  in  human  longevity  throughout 
that  portion  of  the  civilized  world  that  enjoys  such  improve- 
ments. Unfortunately  there  is  not  reliable  data  of  previous 
censuses  to  confirm  the  theory  or  give  support  to  this  deduc- 
tion, plausible  as  it  appears.  Much  of  the  heralded  advances 
undoubtedly  serve  only  to  prolong  the  life  of  the  young 
weakling,  who  must  eventually  succumb  with  a  gift  of  a  few 
increased  years  or  days.  If  adult  longevity  has  increased 
appreciably  under  the  strain  of  latter-day  nervous  activity, 
particularly  in  America,  it  remains  to  be  statistically  estab- 
lished. 

In  those  cities  and  States  comprising  the  registration 
area,  where  superior  accuracy  exists  in  matters  of  vital  sta- 
tistics, the  negro  death  rate  is  29.6  per  1,000  population 
against  a  white  death  rate  of  17.3,  which  includes  both  the 
foreign  and  native  whites,  the  native  whites  having  the  lower 
death  rate  of  16.6  and  the  foreign  whites  of  19.4. 

Another  branch  of  vital  statistics  of  general  interest  deals 
with  the  relative  longevity  of  the  sexes.  It  is  generally 
accepted  that  women  as  a  whole,  and  certainly  for  the 
mature  and  elderly  ages,  have  the  lower  death  rate.  Inac- 
curacies in  both  the  population  and  death  returns  of  the  cen- 
sus, and  particularly  in  the  disposition  of  women  to  under- 
state their  ages,  prohibit  absolute  conclusions  from  census 
tables. 

Despite  the  fact  of  greater  relative  longevity  in  women, 
women  have  not  been  considered  as  desirable  for  life- 
insurance  risks  as  men.  The  reasons  of  this  are  borne  out  in 
the  experience  of  the  companies,  where  women  as  insurants 


Science  and  Human  Life.  1 1  5 

have  usually  shown  heavier  mortality  than  men,  whereas  the 
women  annuitants  have  shown  better  than  men.  This  has 
been  accounted  for  by  three  undoubted  conditions :  first,  that 
the  woman  is  less  rigidly  examined  than  the  man,  because  of 
feelings  of  false  delicacy  which  are  too  often  present  both  in 
the  subject  and  the  examiner,  and  not  infrequently  in  one  or 
the  other;  secondly,  women  are  charged  with  obtuse  appre- 
ciation of  commercial  ethics  by  which  they  distort  answers 
or  withhold  facts  in  their  applications,  to  a  greater  extent 
than  men ;  and  lastly,  in  that  sixth  sense  of  a  woman,  intui- 
tion, by  which  she  seems  more  accurately  to  judge  her  own 
chance  of  longevity,  and  be  governed  accordingly  in  taking 
insurance  or  an  annuity  than  is  the  case  with  a  man. 

This  element  of  self-selection  in  women  is  not  wholly 
absent  in  the  man,  as  the  experience  of  both  men  and  women 
on  endowment  forms  of  insurance,  where  the  premium  is 
higher  and  there  are  large  benefits  of  survivorship,  shows 
distinctly  lower  mortality  than  that  experienced  on  the 
lower-priced  insurance  covering  pure  death  protection.  In 
the  industrial  classes,  where  the  feeling  of  exaggerated  deli- 
cacy is  less,  and  the  amount  of  the  policy  much  smaller,  with 
corresponding  decrease  in  ability  or  desire  to  misrepresent, 
female  mortality  shows  appreciably  lower  than  that  of  the 
males. 

The  insurance  of  women  is  becoming  much  more  general, 
as  women  are  more  and  more  taking  places  in  the  business 
world,  and  assuming  increased  responsibilities.  It  is  the 
custom  with  American  life-insurance  companies  to  insure 
women  upon  the  same  terms  as  men,  although  some  com- 
panies still  exclude  women,  or  issue  them  policies  only  upon 
payment  of  extra  premium. 

The  extra  premium  in  life  insurance  is  in  the  way  of 
equalizing  conditions  not  covered  by  the  general  mortality 


1 1 6  The  Romance  of  Life  Insurance. 

table.  In  later  years,  a  nicer  analysis  of  extra  hazards  has 
enabled  the  companies  to  go  further  and  accept  many  classes 
of  risks  that  are  substandard  in  some  one  or  more  respects. 
The  law  of  mortality  and  the  doctrine  of  probability  are 
accordingly  supplemented  with  a  judgment  more  or  less 
arbitrary,  but  designed  to  fit  the  facts. 

Overweights  and  underweights,  for  instance,  present 
hazards  at  times  which  can  be  successfully  reconciled  by 
varying  the  plan  of  insurance  proposed.  A  young  man 
excessively  overweight  might  be  judged  a  standard  risk  in 
respect  to  other  details  in  his  application,  for  a  certain  num- 
ber of  years,  and  accordingly  be  safely  insured  as  a  standard 
risk  on  a  form  of  policy  that  would  terminate  at  the  expiry 
of  these  years  or  before  the  tendencies  to  overweight  would 
add  a  hazard  not  contemplated  in  the  mortality  table.  In  a 
case  of  this  description  a  company  would  be  safe  in  issuing 
an  endowment  policy  of  twenty  years  or  shorter,  where  the 
hazard  is  not  likely  to  become  aggravated  until  that  time. 
The  overweight  would  thus  obtain  a  policy  on  exactly  the 
same  terms  as  a  standard  risk,  upon  a  plan  that  was  mutually 
acceptable. 

A  system  in  considerable  vogue  where  the  extra  hazard  is 
likely  to  occur  at  once  and  carry  to  diminishing  extent  for  a 
number  of  years,  is  that  of  charging  a  lien  against  the  con- 
tract, reducing  from  year  to  year,  thereby  increasing  the 
insurance  until  it  eventually  reaches  the  full  face  value.  It 
is  argued  in  such  cases  that  the  applicant  is  but  expressing 
a  belief  in  his  personal  longevity  by  accepting  a  lien  penalty 
against  his  policy  in  reducing  amount  during  the  first  years 
of  its  existence,  to  cooperate  with  the  company  in  covering 
the  extra  hazard.  If  the  man  lives,  his  judgment  of  himself, 
which  is  probably  favorable,  is  vindicated,  and  he  has  insur- 
ance without  penalty  and  without  extra  premium  in  the 


Science  and  Human  Life.  1 1 7 

interim,  whereas  if  he  dies,  the  returns  from  the  life  insur- 
ance, even  after  deducting  the  maximum  lien  from  the  face 
of  the  policy,  make  a  most  profitable  investment. 

Statutory  abolition  of  the  misused  deferred-dividend  sys- 
tem has  unthinkingly  and  unfortunately  removed  the  possi- 
bility for  grading  lives  into  separate  dividend  classes  accord- 
ing to  their  mortality.  This  plan  was  the  exceedingly  simple 
one  of  charging  no  extra  premium  or  penalty,  but  keeping 
each  class's  dividend  account  separately,  and  charging  them 
separately  with  their  mortality.  In  the  absence  of  this 
method  of  making  adjustment,  which  could  be  applied  to  the 
less  hazardous  of  the  substandard  risks,  some  companies  are 
using  a  system  of  rating  up  ages.  An  extra  hazard  is  here 
covered  by  an  addition  to  the  age,  which  means  an  addition 
to  the  premium  and  hence  to  the  cost  of  the  insurance,  a  sys- 
tem which  has  been  in  vogue  in  England  for  years,  but  one 
that  does  not  work  out  with  the  same  nicety  as  the  other 
systems  enumerated. 

Too  often  men  and  women  are  stayed  from  making  appli- 
cation for  life  insurance  through  fear  of  rejection.  Fre- 
quently this  fear  is  fanciful,  based  on  some  item  which  is 
separately  unimportant,  such  as  their  own  mis  judgment  of 
their  variation  from  standard  weights  or  of  the  rapidity  of 
their  pulse,  or  of  the  fear  of  heart,  lung  or  kidney  impair- 
ment which  may  have  little  or  no  influence  on  insurability. 
Deaths  in  a  family  from  various  causes,  and  particularly 
from  tuberculosis,  are,  unfortunately,  not  an  infrequent 
deterrent  from  making  application.  Nor  need  a  man  who 
has  been  rejected  hesitate  to  apply  again,  frankly  giving 
details  of  his  rejection  where  he  considers  the  rejection  not 
justifiable,  or  in  any  case  renewing  application  after  a  num- 
ber of  years  have  expired. 

One  important  American  company  insured  all  persons 


1 1 8  The  Romance  of  Life  Insurance. 

excepting  those  actually  sick,  drunkards  and  cases  involving 
moral  hazard.  In  order  to  do  this,  the  basic  science  of  life 
insurance,  as  found  in  the  law  of  mortality  and  the  doctrine 
of  probability,  was  at  times  heroically  supplemented  by  sta- 
tistical delving  and  measuring  by  the  medical  director  and 
the  actuary.  In  fact,  in  the  particular  company  under  dis- 
cussion, a  series  of  dividend  classes  was  arranged  during 
the  days  of  the  tontine  dividend,  and  an  elaborate  system  of 
liens,  adjustable  in  their  amount  and  in  the  manner  of 
reduction,  and  the  plan  of  insurance  upon  which  they 
operated,  was  brought  into  account,  supplementing  the  mor- 
tality table  with  prognostic  accuracy. 

The  service  of  bringing  life  insurance  by  scientific  meas- 
urement of  risks  to  all  classes,  including  many  gradations  of 
substandard  risks,  who  perhaps  need  life  insurance  more 
than  other  classes,  is  the  final  achievement  of  scientific 
research  in  commercial  dealing  with  human  life. 


JOHN  A.  HARTIGAN. 


in  Aug 


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9ril     !o    Jnobi 


sne  s 


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ite  in  bureaus  or 
Mic  jve  supervision 

e  bureaus  are  com- 
from  insurance  in  the 
:ment  fees,  and  becomt 
insurance  laws  and 
ihcse  la\ 
ly  treati 

bled  to  render 
public  in  n 


JOHN  A.  HARTIGAN,  Insurance  Commissioner  of  Min- 
nesota, President  of  the  National  Convention  of  State 
Insurance  Commissioners  (1909). 


TOh 


CHAPTER   VIII. 
LIFE-INSURANCE  SUPERVISION. 

AT  the  meeting  of  insurance  commissioners  of  the  several 
States  in  national  convention  at  Detroit,  in  August, 
1908,  Hon.  Reau  E.  Folk,  Insurance  Commissioner  of  Ten- 
nessee, and  president  of  the  convention,  told  a  story  of  a 
southern  darky  that  illustrates  the  things  to  avoid  in  life- 
insurance  supervision  and  legislation. 

According  to  Mr.  Folk,  this  old  Texas  darky,  known  as 
the  "  cow  doctor,"  was  called  in  to  minister  to  a  sick  cow. 
Questioned  later  by  the  owner  of  the  cow  as  to  how  the 
animal  was  getting  along  under  his  treatment,  he  replied : 

"  Boss,  she  is  well  of  the  disease,  but  I  b'lieve  she's  gwine 
ter  die  of  the  treatment." 

Life  insurance  is  supervised  by  the  State  in  bureaus  or 
departments  which  at  the  same  time  have  supervision  over 
all  other  branches  of  insurance.  These  bureaus  are  com- 
monly the  collectors  of  revenue  from  insurance  in  the  form 
of  taxation,  licenses  and  department  fees,  and  become  the 
especial  interpreters  of  the  life-insurance  laws  and  a  power 
in  recommending  and  passing  these  laws. 

So  far  as  possible,  in  briefly  treating  the  topic  of  life- 
insurance  supervision,  all  forms  of  insurance  other  than 
life  will  here  be  excluded  from  consideration. 

As  constituted  at  present  the  insurance  departments  of 
the  various  States  are  enabled  to  render  large  service  to 
policyholders  and  the  inquiring  public  in  matters  of  insur- 
ance. These  departments  have  in  their  files,  and  otherwise 
available,  information  found  helpful  and  reassuring  to 

121 


122  The  Romance  of  Life  Insurance. 

inquiring  policyholders.  True,  the  same  information  could 
be  obtained  in  most  cases  direct  from  any  reputable  life- 
insurance  company,  but  inquiries  from  the  State  department 
often  assuage  doubts  not  easily  removed  in  even  the  frankest 
replies  from  company  officials.  Increased  recourse  to  the 
insurance  departments  upon  matters  now  too  frequently 
turned  over  to  attorneys  at  needless  expense  to  the  policy- 
holders,  would  greatly  enhance  the  value  of  the  State  depart- 
ments to  the  public  and  the  policyholder. 

Beyond  this  usefulness,  which  requires  little  more  than 
the  functions  of  an  attorney  on  the  part  of  the  insurance 
commissioner,  or  the  use  of  his  power  of  magistracy,  the 
insurance  departments  are  charged  with  the  obligation  to 
pass  upon  the  solvency  of  all  insurance  corporations  oper- 
ating within  the  confines  of  the  State,  introducing  conditions 
of  State  supervision  where  fulfillment  can  not  be  expected  to 
equal  requirement,  and  where  if  it  could,  an  economic  loss 
would  be  entailed  in  duplicating  in  each  of  the  several  States 
work  that  might  properly  be  done  in  any  one. 

When  the  State  creates  an  artificial  individual  by  giving 
corporate  existence  to  a  life-insurance  company,  it  becomes 
its  duty  to  supervise  its  acts,  and  it  is  the  right  of  all  having 
dealings  with  an  artificial  creature  of  the  State  to  demand 
its  proper  regulation  through  proper  supervision. 

There  are  forty-six  States  in  the  American  Union  to-day, 
and  a  number  of  territories.  Each  of  these  States  can  and 
does  undertake,  to  greater  or  less  extent,  the  supervision  of 
all  life-insurance  companies  operating  within  its  separate 
borders.  The  operations  of  life  insurance  in  the  territories, 
insular  possessions,  and  the  District  of  Columbia  are  under 
the  control  of  the  federal  government.  Within  the  sovereign 
States  themselves,  and  in  interstate  transactions  between  the 
sovereign  States,  the  federal  government  has  no  jurisdiction. 


Life-insurance  Supervision.  123 

More  than  this,  the  sovereignty  of  the  individual  State  in 
absolute  right  to  dictate  and  legislate  for  all  life-insurance 
companies  operating  within  its  borders  is  emphasized  by 
statutes  adopted  in  many  States  to  cancel  the  license  of  a 
life-insurance  company  that  has  recourse  to  the  federal 
courts  in  litigation  with  citizens  of  the  State. 

Life  insurance  is  therefore  not  supervised  by  any  one 
thoroughly  equipped  and  centralized  bureau,  such  as  would 
be  possible  if  its  transactions  were  construed  as  commerce, 
and  thus  brought  under  the  supervision  of  the  National  Con- 
gress, which  has  constitutional  control  of  the  transactions  of 
interstate  commerce.  Nor  is  there  in  any  one  State  an  insur- 
ance department  sufficiently  well  equipped  to  supervise  in 
actuality  all  insurance  companies  operating  within  its  State 
lines.  There  are  not  a  great  many  States  that  can  rightfully 
boast  of  ability  to  supervise  efficiently  their  own  corpora- 
tions in  the  sense  of  being  able  to  make  periodic  examina- 
tions and  valuations  of  all  the  home  companies  in  a  manner 
that  would  merit  general  credence  and  acceptance  from  other 
well-equipped  insurance  departments. 

Life  insurance  in  America  pays  for  supervision  by  forty 
or  more  different  bodies,  and  receives  complete  and  thorough 
supervision  from  none.  Part  of  this  money  is  paid  to  poli- 
ticians pure  and  simple,  whose  qualifications  for  the  insur- 
ance commissionership  are  summed  up  in  ability  to  be  elected 
or  appointed  to  a  State  office  calling  for  the  insurance  com- 
missioner's emoluments.  This  State  office  goes  too  often  as 
a  political  prize.  The  job  might  as  well  have  been  the  super- 
vision of  any  other  business  or  industry  based  on  scientific 
principles  about  which  the  politician  was  utterly  ignorant. 
In  the  same  way  the  deputyships  and  the  larger  salaried 
positions  of  the  office  frequently  go  in  turn  as  political 
rewards.  The  money  that  goes  thus  to  reward  politicians 


124  The  Romance  of  Life  Insurance. 

who  do  not  pretend  to  execute  competently  the  tasks  of 
insurance  supervision  is  policy  holders'  money  thrown  away, 
or  even  worse.  The  worse  comes  in  when  these  politicians 
attempt  unwarranted  dictation  in  affairs  of  company  man- 
agement, or  compel  useless  examination  of  life-insurance 
companies  by  themselves  or  men  not  competent  to  do  more 
than  hamper  the  work  of  the  office  upon  which  they  inflict 
themselves  to  their  individual  profit  and  the  policyholders' 
loss. 

While  life  insurance  has  not  been  lacking  in  dishonest, 
culpable  and  inefficient  company  executives,  whose  well- 
aired  offenses  have  injured  the  business,  ignorant  and  prej- 
udiced public  officials  have  done  quite  as  much  injury  to  the 
policyholders,  and  have  imposed  infinitely  more  unnecessary 
expense. 

Many  commissioners  who  have  come  into  office  through 
the  usual  political  channels,  without  previous  knowledge  of 
life  insurance,  have  applied  themselves  assiduously  to  the 
duties  of  their  office,  to  the  great  advantage  of  the  policy- 
holders  of  their  State  and  to  the  furtherance  of  the  cause  of 
life  insurance.  In  yet  other  States,  where  the  office  is  not 
bandied  from  term  to  term,  or  with  even  a  change  in  domi- 
nant political  party,  State  departments  have  grown  up  effi- 
cient and  well-managed,  and  State  commissioners  have 
developed  into  forcible  advocates  of  the  policyholders'  inter- 
ests and  of  the  cause  of  insurance. 

Without  doubt  the  personnel  of  the  insurance  commis- 
sioners, both  as  to  personal  integrity  and  official  capacity,  has 
been  greatly  advanced  within  the  last  ten  years,  and  is  to-day 
higher  than  ever  before.  Considering,  however,  the  enor- 
mous cost  to  life  insurance  of  present  supervision,  and  the 
few  State  departments  in  the  country  equal  to  passing 
authoritatively  on  the  practices  and  standing  of  even  the 


Life-insurance  Supervision.  125 

limited  number  of  life-insurance  companies  chartered  by 
their  State,  the  cause  of  proper  supervision  remains  an  eco- 
nomic problem  of  large  proportions. 

It  is  a  problem  of  the  public  that  benefits  as  a  public 
through  the  economic  operations  of  life  insurance,  almost  as 
intimately  and  keenly  as  it  is  a  problem  of  the  policyholders 
themselves,  constituting  the  units  of  the  great  life-insurance 
system. 

Life-insurance  companies  are  but  an  aggregation  of  these 
policyholder  units,  a  fact  that  has  never  been  properly  appre- 
ciated, and  that  can  not  be  too  strongly  emphasized.  Any 
system  of  supervision  that  hampers  the  operation  of  life 
insurance,  or  unduly  restricts  its  expansion  and  development, 
is  an  injury  to  the  policyholders  who  constitute  the  com- 
panies, an  injury  that  reaches  down  in  their  pockets,  filching 
money  equivalents  no  less  real  than  the  dollars  and  cents 
directly  mulcted  in  departmental  fees  and  licenses  that  not 
only  support  useless  duplication  of  departments  but,  beyond 
this,  contribute  uncontemplated  profits  to  the  State. 
.  With  all  its  sins,  insurance  supervision  might  be  claimed 
to  justify  itself  in  the  magnificent  security  which  surrounds 
life  insurance,  were  it  not  that  this  scrutiny  and  security 
could  have  been  effected  more  economically  and  efficiently. 
It  is  a  duty  of  the  future  to  see  that  it  is.  It  is  the  gratifying 
condition  of  the  present  that  the  trend  of  events  is  in  such 
direction,  showing  insurance  commissioners  and  State  offi- 
cials rising  above  personal  and  political  considerations,  to 
condemn  almost  unanimously  the  present  excessive  taxation 
of  insurance,  and  exactions  of  excessive  fees  beyond  depart- 
mental necessities,  and  above  all  in  forwarding  a  concert  of 
action  to  supplant  multiple  individual  action  with  its  conse- 
quent inharmony  and  wasteful  expense. 

The  Insurance  Commissioners'  National  Convention  is 


126  The  Romance  of  Life  Insurance. 

itself  a  great  achievement  for  unity  and  centralization.  This 
convention  was  drawn  together  years  ago  by  the  necessity 
for  some  uniformity  in  the  annual  statement  blanks  required 
from  the  insurance  companies.  While  every  life-insurance 
company  in  America  to-day  must  submit  annual  statements 
to  every  State  or  territory  in  which  it  operates,  fortunately, 
through  the  effort  of  this  national  convention  of  State  offi- 
cials, the  statements  are  for  the  most  part  made  upon  the 
same  form,  requiring  the  same  detail. 

Again,  during  the  turbulent  days  of  the  Equitable  con- 
troversy in  1905,  when  a  general  distrust  of  life  insurance 
was  foisted  by  the  press,  and  insurance  departments  of  the 
various  States  felt  that  events  served  to  discredit  the  then 
constituted  New  York  Insurance  Department,  Commissioner 
Folk,  of  Tennessee,  to  relieve  the  feeling  of  uncertainty 
through  the  country,  and  to  prevent  multiple  and  expensive 
examinations  by  the  different  States,  suggested  a  plan  of 
joint  action  by  a  committee  of  western  States.  This  com- 
mittee, comprising  five  of  the  ablest  and  best-known  insur- 
ance commissioners  in  the  South  and  West,  secured  the 
services  of  experts  in  whom  they  had  confidence,  and  under- 
took what  has  probably  been  the  most  thorough  examination 
of  a  large  life-insurance  company  ever  made,  covering  the 
operations  of  the  company  both  at  home  and  abroad. 

During  the  progress  of  this  examination,  a  striking  illus- 
tration was  supplied  of  the  absurdities  in  State  supervision, 
not  uncommonly  viewed  in  company  management.  A  typical 
backwoods  politician,  parading  for  the  time  being  as  insur- 
ance commissioner  for  one  of  the  southwestern  States, 
appeared  in  New  York  at  the  office  of  the  company  under 
examination,  stating  that  he  was  there  to  conduct  personally 
an  examination  that  would  reassure  the  people  of  his  State 
about  the  condition  of  this  company. 


Life-insurance  Supervision.  127 

"  The  folks  in  my  State/*  he  said  to  one  of  the  actuaries 
in  charge,  "  are  disturbed  about  the  condition  of  this  com- 
pany, and  I  am  here  to  count  the  assets  and  otherwise  pass 
upon  the  condition  of  the  company." 

"  You  are  talking  to  the  wrong  man,"  said  the  expert. 
"  You  must  make  your  demands  of  the  president  of  the  com- 
pany ;  but  before  you  do  so  it  might  be  illuminating  for  you 
to  know  that  we  now  have  ten  men  in  the  vaults  of  the  com- 
pany, who  have  for  several  days  been  spending  their  entire 
time  checking  the  bonds  this  company  owns,  and  who,  with 
each  man  assisted  by  a  clerk  of  the  company,  will  be  engaged 
many  days  more  in  this  one  task  alone." 

This  bit  of  news  quite  overwhelmed  the  insurance  com- 
missioner. When  he  had  digested  this  staggering  condition, 
he  visited  the  officers  of  the  company,  who  talked  pleasantly 
to  him ;  he  took  in  New  York  for  a  few  days,  and  then,  no 
doubt,  went  back  to  report  what  his  vigilance  had  done  for 
the  people  of  his  State.  If  he  followed  the  usual  practices, 
he  sent  in  a  generous  bill  for  his  expenses,  which  was  prob- 
ably worth  the  price  in  giving  him  a  slight  appreciation  of 
the  enormity  of  State  supervision. 

To  say  that  supervision  of  life  insurance  is  too  big  for 
any  one  State,  and  that  the  policyholders  paying  to  more 
than  forty  different  States  for  supervision  are  humbugged 
more  than  forty  times,  is  not  telling  the  whole  story.  One  of 
the  most  vital  weaknesses  in  present  State  supervision  is  that 
of  producing  conflicting  methods,  laws  and  regulations  for 
supervision  that  embarrass  and  retard  the  operation  of  inter- 
state life  insurance  and  add  to  its  cost. 

Mr.  Folk's  story  about  the  sick  cow  was  introduced 
apropos  of  a  centralizing  movement,  given  impetus  at  Wash- 
ington by  the  President  of  the  United  States,  which  promises 
to  hasten  the  nationalization  of  insurance  supervision,  as  it 


128  The  Romance  of  Life  Insurance. 

may  even  now  be  credited  with  supplying  precedent  for  the 
convention  of  governors  who  recently  met  to  consider  con- 
serving the  natural  resources  of  the  nation. 

As  the  life-insurance  investigation  proceeded,  it  became 
increasingly  apparent  to  the  committee  of  western  insurance 
commissioners  engaged  upon  the  New  York  examination, 
that  there  would  be  a  deluge  of  insurance  measures  flooded 
into  the  legislatures  of  the  different  States  that  would  meet 
at  the  first  of  the  year.  Realizing  from  personal  pressure 
the  political  demands  for  radical  life-insurance  legislation, 
these  insurance  commissioners  bestirred  themselves  to  pre- 
vent ill-considered,  drastic  and  conflicting  legislation  that 
would  injure  the  cause  of  life  insurance,  and,  through  that 
cause,  the  policyholder  and  the  public. 

Thomas  D.  O'Brien,  then  the  insurance  commissioner  of 
Minnesota,  took  the  initiative  in  placing  the  situation  before 
Theodore  Roosevelt  in  a  visit  to  Washington.  The  Presi- 
dent acted  with  characteristic  promptness,  making  an 
appointment  for  a  conference  with  the  western  insurance 
commissioners  engaged  in  the  New  York  examination,  who 
attended  with  their  expert  actuaries  and  the  executive  com- 
mittee of  the  Life  Insurance  Commissioners'  Convention. 
As  a  result  of  this  conference,  a  convention  was  called  in 
February,  1906,  of  governors,  attorneys-general  and  insur- 
ance commissioners,  in  the  name  of  Thomas  E.  Drake, 
Insurance  Commissioner  of  Washington,  D.  C. 

That  this  conference  did  not  result  in  achieving  uniform 
life-insurance  legislation  in  the  several  States  is  less  impor- 
tant than  the  fact  that  the  idea  of  a  national  convention  for 
uniform  action  by  the  different  States  was  given  force.  Nor 
was  the  result  of  this  convention  without  its  fruit.  The  con- 
vention appointed  a  committee  of  fifteen,  composed  of  State 
officials  of  the  various  States,  which  committee,  headed  by 


Life-insurance  Supervision.  129 

Thomas  D.  O'Brien,  the  original  mover  in  the  matter,  held 
numerous  conferences  attended  by  experts  and  company 
representatives,  which  resulted  in  the  formation  of  a  series 
of  life-insurance  measures  greatly  in  advance  of  what  might 
have  been  expected  under  the  circumstances. 

Of  course,  when  these  measures  were  introduced  in  the 
different  legislatures,  they  were  modified  and ,  amended. 
Even  among  the  States  which  followed  or  attempted  to 
follow  the  recommendations  of  the  Committee  of  Fifteen,  no 
two  adopted  all  the  measures  in  the  same  identical  form. 
Withal,  however,  the  Committee  of  Fifteen  performed  a 
prodigious  service  in  preventing  ill-considered  and  unwise 
legislation  being  generally  introduced  in  conflicting  meas- 
ures throughout  the  length  and  breadth  of  the  Union,  and 
has  achieved  a  large  degree  of  uniformity  in  the  measures 
already  enacted,  and  in  the  prospective  enactment  of  these 
measures  by  legislatures  yet  to  convene. 

At  the  meetings  in  Washington,  and  later  at  the  Chicago 
conference,  a  young  congressman,  Butler  Ames,  of  Massa- 
chusetts, gave  force  to  an  idea  for  centralizing  life-insurance 
supervision  or  regulation,  without  attempting  to  legislate 
into  being  federal  supervision,  or  restrict  the  sovereign 
supervisory  powers  of  the  States.  This  idea,  introduced 
later  into  Congress  as  the  Ames  Bill,  was  made  a  subject  of 
hearing  before  the  Judiciary  Committee  of  Congress,  and 
merits  more  attention  as  a  solution  to  the  question  of  proper 
supervision  than  it  has  received.  Ames*  plan  was  to  build  up 
an  insurance  department  in  Washington,  D.  C.,  under  the 
Department  of  Commerce  and  Labor,  and  equip  it  efficiently 
and  thoroughly  to  make  all  necessary  examinations  of  life- 
insurance  companies  of  the  various  States;  to  make  the 
intricate  reserve  calculations,  and  otherwise  pass  upon  the 
management  and  solvency  of  the  different  companies  oper- 


130  The  Romance  of  Life  Insurance. 

ating  in  Washington,  D.  C,  and  by  request  from  commis- 
sioners of  other  States,  to  extend  its  activities  to  companies 
not  operating  in  Washington. 

A  central  department  of  this  kind,  equipped  to  a  degree 
of  thoroughness  and  efficiency  not  existent,  and  indeed  not 
possible  or  advisable  in  any  one  single  State,  might  thus  be 
able  to  pass  on  company  conditions  in  an  authoritative  way 
that  would  be  accepted  uniformly  by  the  different  States  and 
territories.  Thus  a  life-insurance  company  operating  under 
a  State  department  of  unestablished  efficiency,  and  wishing 
to  enter  into  several  of  the  more  exacting  States,  would  find 
it  economical  to  have  its  affairs  examined  and  passed  upon 
by  one  central  department,  whose  examination  would  open 
the  doors  to  the  several  States,  rather  than  to  submit  to 
multiple  individual  State  examinations.  In  the  same  way 
when  a  company  operating  throughout  the  United  States 
would  require  a  periodic  examination,  or  else  an  examina- 
tion due  to  the  exigencies  of  the  moment,  the  responsibilities 
of  the  various  insurance  commissioners  throughout  the 
United  States  could  easily  be  satisfied  by  one  thorough 
examination  by  some  such  central  bureau,  as  proposed  in  the 
Ames  Bill. 

Of  course,  there  exists  a  spirit  of  comity  among  the  States 
to-day  whereby  a  home-State  examination  and  favorable 
report  is  accepted  by  other  States  in  more  or  less  degree  as 
the  home  company  is  in  general  good  repute,  and  the  depart- 
ment controlling  the  company  of  admitted  efficiency.  The 
utter  inability  of  any  one  insurance  commissioner  to  examine 
and  pass  upon  all  companies  operating  within  his  State,  has 
driven  many  commissioners  to  pushing  the  doctrine  of  State 
comity  to  the  extreme  of  accepting  the  favorable  reports  of 
all  other  States  in  passing  upon  their  home  companies,  pro- 
vided, of  course,  that  the  reports  meet  the  requirements  as 


Life-insurance  Supervision.  131 

to  solvency  and  do  not  otherwise  fail  to  measure  up  to 
statutory  demands.  Comity  thus  applied  is  a  panacea  against 
political  ills  that  may  at  times  befall  neglected  responsibilities 
of  examining  the  companies  of  other  States,  and  intrenches 
the  commissioner  in  his  position,  and  often  his  desire  to  be 
let  alone  in  his  own  State. 

Other  factors  operating  to  relieve  a  situation  that  calls 
for  needless  duplication  of  examinations,  individually  more 
or  less  effective  and  thorough,  is  the  disposition  following 
the  action  of  the  western  insurance  commissioners  for  a 
plural  number  of  States  to  join  in  an  examination,  or  accept 
some  one  State's  findings  because  of  the  individual  reputa- 
tion of  the  examiner  engaged  to  conduct  the  work. 

At  best,  however,  the  "  get  together  "  movement  among 
the  States  is  still  desultory  in  character,  and  justifies 
optimism  only  in  the  indication  of  what  this  movement  may 
yet  do  in  finally  evolving  centralization  and  uniformity.  It 
is  to  be  regretted  that  the  responsibilities  of  drawing  a  model 
insurance  code,  to  work  coordinately  with  the  Ames  Bill's 
central  insurance-department  idea,  were  not  delegated  to 
competent  insurance  experts.  Ames  did  not  pose  as  a  life- 
insurance  expert,  but  unfortunately  for  his  centralization 
idea  this  attitude  was  forced  upon  him,  and  the  idea  was  lost 
in  the  general  disintegration  of  his  model-insurance  code 
that  took  place  during  the  hearing  before  the  Judiciary 
Committee  of  Congress. 

Since  direct  federal  control  of  life  insurance  has  seem- 
ingly been  placed  out  of  reach  by  the  decisions  of  the 
Supreme  Court,  it  is  to  be  hoped  the  idea  of  the  Ames  Bill 
may  yet  be  given  force  in  constructive  legislation.  Indirectly 
some  such  measure,  building  up  a  model  department  at 
Washington,  D.  C,  under  the  control  of  the  District  Com- 
missioners, and  consequently  under  the  control  of  the 


132  The  Romance  of  Life  Insurance. 

National  Congress,  could  by  the  voluntary  action  of  the 
different  States  be  made  a  great  force  for  efficient  and 
economical  supervision. 

Conceding  the  advisability  of  a  centralizing  department, 
it  seems  greatly  to  be  deplored  that  the  Supreme  Court  of 
the  United  States  should  have  decided  (Paul  vs.  Virginia) 
that  life  insurance  is  not  commerce,  and  therefore  its  inter- 
state transactions  are  excluded  from  the  control  of  Congress 
or  the  federal  government,  leaving  each  State  to  exclude 
the  insurance  corporations  of  the  other  States  according  to 
their  own  dictates,  or  include  them  only  upon  such  terms, 
and  subject  to  such  laws,  as  they  chose  to  enact. 

Elizur  Wright,  the  first  insurance  commissioner  of 
Massachusetts,  and  therefore  the  first  insurance  commis- 
sioner in  the  United  States,  pointed  out  in  1870  the  serious 
handicap  this  Paul  vs.  Virginia  decision  imposed  upon 
American  life  insurance  in  matters  of  supervision  and  legis- 
lation. He  said :  "  This  loss  of  nationality  is  a  very  serious 
matter.  If  there  is  any  possibility  of  preventing  it  and 
securing  to  life  insurance  the  supervision  and  protection  of 
national  law,  wisely  conceived  and  honestly  administered, 
the  guardians  of  life  insurance  should  now  bestir  them- 
selves." 

Advocates  of  national  life-insurance  supervision  have 
based  hopes  on  the  possibility  of  the  Supreme  Court  revers- 
ing itself  in  the  matter,  or  of  the  validity  of  an  act  of  Con- 
gress formally  declaring  life  insurance  to  be  a  commerce  and 
hence  subject  to  federal  control.  The  American  Bar  Asso- 
ciation, in  the  majority  report  submitted  August  30,  1905, 
declared :  "  In  the  interest  of  publicity  and  to  secure  regu- 
lation which  will  insure  the  maximum  of  protection  to  the 
public,  and  lessen  the  cost  of  insurance,  Congress  should 


Life-insurance  Supervision.  133 

provide  for  the  supervision  of  the  business,  for  it  is  only  by 
legislation  that  this  power  can  be  demonstrated." 

President  Roosevelt,  in  his  message  to  Congress  sent  the 
December  preceding  this  report,  urged  again  his  previous 
recommendation  that  Congress  should  consider  whether  it 
was  in  its  power  to  control  interstate  insurance  transactions. 
Both  houses  of  Congress,  in  pursuance  of  this  recom- 
mendation, submitted  to  their  respective  committees  on  the 
judiciary  the  question  proposed,  with  the  result  that  both 
committees  reported  unanimously  that  insurance  is  not  com- 
merce, and  that  it  could  not,  therefore,  be  subjected  to  fed- 
eral control. 

There  are  other  reasons  why  federal  control  would  in 
practice  be  long  delayed,  if  ever  realized,  and  why  consistent 
effort  toward  a  unifying  action  of  the  State  insurance  com- 
missioners is  a  desirable  thing  to  foster  and  to  improve  at 
the  present  time.  Under  the  political  system,  the  insurance 
commissionership,  its  perquisites  and  its  patronage,  is  a 
prize  not  to  be  lightly  treated,  and  one  whose  abolishment 
must  be  attained  by  the  politicians  and  those  who  profit  most 
from  its  continuance.  Beyond  this,  the  State  rights  subject 
is  involved. 

Moreover,  a  national  bureau  of  life  insurance  has  been 
looked  at  askance  by  many  life-insurance  men,  who  fear 
that  it  would  become  but  an  additional  source  of  expense  and 
annoyance,  without  superseding  the  present  clumsy  and 
uneconomical  State  control.  With  federal  supervision  super- 
seding State  supervision,  the  question  has  been  raised  as  to 
possibilities  for  unfriendly,  narrow-minded,  disastrous  or 
even  dishonest  treatment,  where  one  man  achieving  his  pre- 
ferment through  political  channels  might  inflict  more 
unavoidable  injury  than  is  possible  under  the  present  mul- 
tiple system. 


134  The  Romance  of  Life  Insurance. 

In  the  last  session  of  the  United  States  Senate  there  were 
two  insurance  presidents  as  senators,  one  a  senator  from 
Connecticut,  absolutely  opposed  to  federal  supervision,  the 
other  a  senator  from  New  Jersey,  a  foremost  advocate  and 
proposer  of  a  measure  in  Congress  attempting  to  achieve 
federal  control.  Among  life-insurance  managers  sentiment 
concerning  federal  control  is  divided,  though  apparently 
growing  more  adverse  to  the  present  multiple  State  super- 
vision. 

Arthur  I.  Vorys,  the  able  commissioner  of  Ohio,  who 
resigned  to  assume  control  of  the  Taft  campaign  in  Ohio, 
after  achieving  a  degree  of  efficiency  that  made  him  con- 
spicuous in  life-insurance  supervision,  was  a  severe  critic  of 
State  supervision  and  a  frank  advocate  of  federal  super- 
vision, or  an  acceptable  substitute.  The  new  commissioner 
of  Kentucky,  Charles  W.  Bell,  has  raised  his  voice  from 
below  the  Mason  and  Dixon  line  in  advocacy  of  federal  con- 
trol. On  the  other  hand,  his  southern  neighbor,  Reau  E. 
Folk,  previously  referred  to,  and  one  of  the  most  able  and 
fearless  commissioners,  considers  that  federal  control  would 
be  a  serious  infringement  upon  State  rights. 

Reviewing  life-insurance  supervision  solely  in  the  light 
of  influences  now  in  operation,  or  possible  to  put  in  opera- 
tion, for  its  immediate  betterment,  the  conclusion  develops 
that  the  cause  of  better  supervision  lies  chiefly  in  forwarding 
centralization  and  unity  through  voluntary  concessions  of 
individuality  among  the  State  insurance  commissioners,  and 
in  the  statutes  of  the  sovereign  States  they  severally  repre- 
sent in  insurance  matters. 

What  has  made  for  uniformity  and  unity  of  action  in  the 
recent  past  among  State  insurance  departments,  largely 
through  the  devoted  efforts  of  a  few  able  commissioners,  is 
but  an  earnest  of  what  can  be  accomplished  in  the  future. 


WILLIAM  C  JOHNSON. 


CHAPTER   IX. 
LIFE-INSURANCE  LEGISLATION. 

THE  public  i  in  the  interim  succeeding 
sessions  of  *  >mmittee,  how  the  facts 
of  the  insurant:  were  distorted  and  exag- 
gerated when  n  e  time,  and,  without  condoning 
the  evils  then  e  life  insurance,  have  learned  to 
appreciate  the  n  the  rela- 
tive pettiness  of  fewness 

of  unworthy 

io  lOSBfiBm   Y3/138B  In&mmoiQ  ..MOaHHOh  .DiMAIJJjW 
It  remains  ForTne*pUDJ  >oiicyhdldei 

*  -XliSfll  3Jll    !Q   32UH3    3flJ   t)3Dn'J  LtiD,   vlcJB    OflW     VJl3    >ltO  JL 

Where    tnc   Cure,    us  TcglSiatrvtn"   Hjjpmrtr,  iS™\fOrSC 

diseaso*n38«  aonBiuani-a^il  aHl  )o 

Life-insurajww 

remains  to  retard  the  progress  of  life  insurance  par- 

ticulars in  which  su  ation  was  unneeded  and  in  which 

such  legislation  tends  io  restrict  proper  r  the  life- 

'rance   business.      Public    opinion,  nust   go 

farther  thai  own  en  ,    . 

supporting,  ig  force  to  such  in  life-ir 

legislation  as  will  reflect  its  own 

Governor  Hughes  ably  pok  at  the  Hi 

ment  of  the  Armstrong  ^islation  that  the  Legis- 

lature of  New  York  State  correct  mis- 

takes. 

)f    the    legislation    enact  :e   the   insurance 

investigation  has  been  helpful  t'  s  and  conducive 

to  its  enduring  n.    Otn  ave  set  a  new  stand- 


WlLLIAM  C.  JOHNSON,  prominent  agency  manager  of 
New  York  city,  who  ably  defended  the  cause  of  life  insur- 
ance, and  particularly  the  cause  of  the  life-insurance  agent, 
before  legislative  bodies  during  the  investigation  era. 


WILLIA  S  ON. 


CHAPTER   IX. 
LIFE-INSURANCE  LEGISLATION. 

THE  public  has  learned,  in  the  interim  succeeding  the 
sessions  of  the  Armstrong  Committee,  how  the  facts 
of  the  insurance  investigation  were  distorted  and  exag- 
gerated when  reported  at  the  time,  and,  without  condoning 
the  evils  then  existent  in  life  insurance,  have  learned  to 
appreciate  the  relative  insignificance  of  these  evils,  the  rela- 
tive pettiness  of  the  graft  exposed,  and  the  relative  fewness 
of  unworthy  insurance  officials. 

It  remains  for  the  public  and  the  policyholder  to  learn 
where  the  cure,  as  legislatively  applied,  is  worse  than  the 
disease. 

Life-insurance  legislation  wrought  under  misconceptions 
remains  to  retard  the  progress  of  life  insurance  in  all  par- 
ticulars in  which  such  legislation  was  unneeded  and  in  which 
such  legislation  tends  to  restrict  proper  expansion  of  the  life- 
insurance  business.  Public  opinion,  therefore,  must  go 
farther  than  correcting  its  own  erroneous  impressions,  by 
supporting  and  giving  force  to  such  changes  in  life-insurance 
legislation  as  will  reflect  its  own  corrected  ideas. 

Governor  Hughes  ably  pointed  out  at  the  time  of  enact- 
ment of  the  Armstrong  insurance  legislation  that  the  Legis- 
lature of  New  York  State  meets  each  year  to  correct  mis- 
takes. 

Much  of  the  legislation  enacted  since  the  insurance 
investigation  has  been  helpful  to  the  business  and  conducive 

to  its  enduring  expansion.    Other  acts  have  set  a  new  stand- 
is? 


138  The  Romance  of  Life  Insurance. 

ard  of  paternalism  in  American  legislation  and  have  grossly 
invaded  rights  of  contract  and  individualism  heretofore  held 
as  sacred  as  the  Constitution  itself. 

Consider  life-insurance  figures  not  as  a  matter  of  mere 
dollars  and  cents,  but  as  an  aggregate  of  policies  covering 
for  the  most  part  urgent  family  needs  in  modest  amount, 
and  then  reckon  from  the  following  statement  of  Superin- 
tendent Kelsey,  in  New  York's  1908  Life  Insurance  Report, 
what  havoc  has  been  wrought  in  the  halt  of  life  insurance  — 
havoc  measured  in  want  and  penury  to  the  uninsured  and  in 
appreciable  effect  upon  the  economic  welfare  of  the  State 
and  the  nation.  Superintendent  Kelsey  reports : 

In  1904,  being  the  year  preceding  the  outbreak  of  life-insurance 
troubles,  the  New  York  State  companies  wrote  new  business,  as  per 
returned  to  Department  on  paid-for  and  written  basis,  to  the  amount 
in  round  numbers  of  $1,147,000,000,  exclusive  of  industrial  insurance, 
and  carried  a  total  insurancce  of  $5,970,000,000.  This  was  an 
increase  of  insurance  in  force  of  more  than  $444,000,000  for  1904 
over  the  preceding  year.  For  several  years  prior  to  1904  the  New 
York  State  companies  had  shown  an  increase  from  year  to  year 
of  insurance  in  force  of  from  $365,000,000  to  $599,000,000,  and  all 
prospects  seemed  favorable  for  uninterrupted  advancement. 
Compared  with  the  figures  of  1904,  the  new  business  of  New  York 
companies  was  less  by  $692,000,000  and  the  aggregate  of  insurance 
in  force  has  decreased  $53,000,000.  Instead  of  an  average  annual 
gain  in  insurance  in  force,  as  shown  for  several  years  prior  to  and 
including  1904,  of  about  $473,000,000,  there  has  been  a  net  average 
falling  off  of  some  $18,000,000  annually  for  the  three  years  since 
1904,  allowance  being  made  for  the  increase  of  insurance  in  force  of 
1005  over  1904. 

New  legislation  in  other  States,  with  the  exception  of 
Wisconsin  and  Texas,  has  largely  followed  the  recom- 
mendation of  the  Committee  of  Fifteen,  and  has  been  for  the 
most  part  beneficial,  and  life-insurance  companies  of  other 
States  than  New  York,  doing  business  in  New  York,  make  a 


Life-insurance  Legislation.  139 

better  showing.    Of  these  companies  Mr.  Kelsey  says  in  his 
report : 

Life-insurance  companies  of  other  States,  which  are  now  doing 
business  in  New  York  and  report  to  this  Department,  in  the  year 
1904  secured  new  business  in  the  sum  of  $650,000,000  and  increased 
the  amount  of  insurance  in  force  over  the  preceding  year  by  $317,- 
500,000.  For  1907  such  companies  will  report  new  insurance  on 
paid-for  basis  approximating  $569,000,000  and  an  increase  of  insur- 
ance in  force  (since  1904)  of  about  $874,000,000. 

After  withstanding  the  iconoclastic  criticism  of  1905,  the 
days  of  the  active  investigation,  life  insurance  has,  in  the 
places  where  new  legislation  has  been  unwisely  restrictive, 
fallen  off  in  a  way  to  indicate  legislative  mistakes. 

It  is  in  the  study  of  life-insurance  legislation  that  the 
reasons  or  excuse  for  some  of  the  worst  abuses  shown  in 
life  insurance  —  in  fact,  the  whole  category  of  evils  epit- 
omized in  the  phrase  "  Yellow  Dog "  items  —  find  their 
being.  Primarily  the  responsibility  for  "Yellow  Dog"  funds 
goes  back  to  the  "  strike  "  legislator  who  introduced  bills 
for  the  sole  purpose  of  being  bought  off,  and  to  the  illogical 
life-insurance  officials  who  assumed  that  the  prevention  of 
unwise  and  expensive  legislation  could  be  permanently 
achieved  in  this  way. 

Andrew  Hamilton,  famous  as  a  dispenser  of  the  so-called 
;<  Yellow  Dog "  moneys,  indisputably  maintained  that  the 
expenditure  of  these  moneys  had  saved  the  companies  and 
therefore  the  policyholders  many  times  the  amount  expended, 
in  avoiding  costly  legislation  and  taxation.  As  the  investi- 
gation showed,  the  three  big  life-insurance  companies 
divided  the  country  up  in  a  crude  manner,  to  assume  each  a 
part  of  the  burden  of  opposing  unfavorable  legislation  or  the 
"  strike  "  measures  of  the  yellow  legislator.  The  obligation 
of  taking  care  of  the  whole  country  was  easily  shifted  to 


140  The  Romance  of  Life  Insurance. 

the  shoulders  of  the  Big  Three,  accordingly  as  the  smaller 
company  realized  that  the  larger  company  had  more  at  stake 
and  in  fighting  the  measure  upon  its  own  account  would 
incidentally  be  forced  to  take  care  of  the  smaller  company. 
It  is  history  that  the  larger  companies  were  forced  to  do  so. 

Apart  from  being  unmoral,  the  system  of  maintaining  an 
insurance  lobby  and  "  Yellow  Dog "  funds  for  preventing 
"  strike  "  legislation  was  shortsighted.  The  problem  grew 
with  increasing  number  of  "  strike  "  bills.  Furthermore,  the 
companies'  "  Yellow  Dog "  methods  were  forfeiting  the 
esteem  of  the  policyholders,  instead  of  arousing  these  policy- 
holders  to  a  realization  that  the  problems  of  correct  legisla- 
tion were  their  own  problems  and  those  of  the  worthy 
legislators  whom  they  selected. 

The  "  Yellow  Dog  "  did  not  have  his  sole  habitat  in  life 
insurance.  His  canine  yelp  was  sounded  more  often  and 
more  recurrently  from  the  strongholds  of  other  powerful 
State  and  interstate  institutions  and  industries.  Similarly, 
the  campaign  contributions  from  life  insurance  for  which  the 
"  Yellow  Dog  "  funds  were  utilized  for  the  first  time  in  the 
silver  campaign  of  1896,  though  morally  wrong,  were 
thought  at  the  time  justified  in  parallel  contributions  from 
other  financial  houses  or  powerful  interests  where  the  free 
coinage  of  silver,  sixteen  to  one,  spelt  disaster. 

Legislative  ethics  seem  generally  to  have  reacted  from 
these  low  standards.  To-day  the  lobby  is  restricted  or  pro- 
hibited. Campaign  contributions  and  similar  items  that 
indirectly  influence  legislation  and  establish  policies  for  the 
country  have  turned  upon  them  the  searchlight  of  a  healthy 
publicity,  and  in  life  insurance  a  commendable  statutory 
"  Thou  shalt  not" 

Life  insurance  was  unfortunate  in  being  made  the  "  hor- 
rible example  "  for  bringing  about  this  improvement  in  a 


Life-insurance  Legislation.  141 

country's  legislative  ethics.  Though  bad  for  the  business  it 
was  good  for  the  country  that  it  was  so,  since  life  insurance, 
because  of  its  soundness  at  core,  was  capable  of  withstanding 
the  wave  of  scrutiny  and  the  criticism.  In  face  of  after 
events  in  some  of  the  great  banks  and  trust  companies  of 
our  money  center,  it  is  safe  to  assume  that  a  similar  search- 
ing investigation  of  other  financial  institutions  would  have 
been  a  much  more  serious  shock  to  the  country  at  large,  and 
perhaps  permanently  disastrous  to  many  institutions  that 
might  thus  have  been  put  under  fire. 

The  proper  substitute  for  all  attempts  at  bribery,  whether 
in  some  Hamiltonian  guise  as  campaign  contributions,  or  in 
any  other  form,  is  a  direct  appeal  to  policyholders  and  legis- 
lators. To  be  convincing,  this  appeal  must  be  accompanied 
by  thorough  publicity  of  the  company's  affairs,  simplicity  in 
describing  the  details  of  the  business,  and  convincement  that 
the  different  life-insurance  companies  are  not  entities  in 
themselves,  but  groups  of  policyholders  banded  together 
under  a  scheme  of  mutual  protection.  Mutual  life  insurance 
calls  for  self-sacrifice  from  the  different  members  in  volun- 
tary tax  to  take  care  of  definite  financial  necessities  brought 
about  by  death,  and  thus  in  a  large  measure  relieves  the 
State  itself  in  supplying  funds  to  bring  up,  educate  and 
develop  citizens  whose  sustenance  and  development  might 
otherwise  have  been  a  charge  upon  the  State. 

The  protection  of  policyholders  as  patrons  of  a  scientific 
business,  enacted  by  power  of  the  State  in  a  corporate  name, 
calls  for  legislation.  Every  item  of  this  legislation  that 
makes  for  basic  soundness  in  life  insurance,  in  prescribing 
proper  standards  upon  which  the  business  may  be  done,  in 
requiring  mathematical  reserves  in  accordance  with  these 
standards,  and  in  otherwise  supervising  the  scientific  cor- 
rectness and  equity  of  plans  of  operation,  and  obtaining  rigid 


142  The  Romance  of  Life  Insurance. 

accountability  of  insurance  funds,  is  not  only  a  boon  to  the 
policyholders  but  makes  insurance  worthy  of  its  name. 

A  controlling  publicity  of  company  affairs,  enacted  to 
bring  out  a  proper  comparison  of  the  economies  between 
different  companies,  of  the  soundness  of  these  companies, 
and  of  their  comparative  service  to  policyholders,  calls  for 
legislation  that  is  highly  beneficial  in  its  type.  When,  how- 
ever, legislation  goes  beyond  this  to  dictate  the  details  of  the 
business  or  set  up  new  standards  in  dealings  in  life  insur- 
ance, admittedly  unwise  to  establish  or  adopt  in  any  other 
department  of  industry  or  commerce,  in  so  far  legislation 
exceeds  its  usefulness  and  becomes  vicious  to  the  interest 
that  it  would  secure. 

Momentous  departures  in  American  legislation  intro- 
duced in  recent  life-insurance  enactments  demand  considera- 
tion on  three  scores : 

First,  because  of  the  immediate  injury  to  the  life-insur- 
ance business,  as  demonstrated  in  the  disintegration  of 
agency  forces  and  the  halt  in  volume  of  business. 

Second,  because  the  laws  are  radical  departures  in  limit- 
ing the  rights  of  contract  and  in  interference  with  the  inter- 
state transaction  of  life  insurance,  through  enactments  that 
reach  out  beyond  the  confines  of  the  State,  indirectly  legis- 
lating for  companies  of  other  States. 

Third,  because  of  the  paternalistic  principles  these  laws 
set  up  in  American  legislation,  surrendering  that  individual- 
ism made  triumphant  by  the  Anglo-Saxon  for  the  pater- 
nalism of  inferior  nations. 

To  illustrate  these  departures  it  is  only  necessary  to  con- 
sider specifically  a  few  of  the  more  important  laws. 

When  New  York  State  enacted  a  standard  life-policy 
law,  at  the  recommendation  of  the  Armstrong  Committee,  it 
borrowed  the  work  of  the  companies  in  setting  up  the 


Life-insurance  Legislation.  143 

present-day  policy  as  a  standard,  and  by  that  very  act  gave 
pause  to  the  further  development  of  life-insurance  forms  and 
clauses. 

Life-insurance  policies  have  been  developed  to  their 
present-day  usefulness  through  the  ingenuity  of  actuaries  and 
insurance  managers  in  devising  forms  of  insurance  with 
privileges  and  conditions  that  would  increase  the  usefulness 
of  life  insurance  and  thereby  increase  its  field  of  operation. 
Healthy  competition  furnished  motive  in  the  struggle  to  per- 
fect the  policy.  The  enactment  of  new  legislation  to  estab- 
lish a  standard  life-insurance  policy  naturally  means  an 
arrestment  of  the  development  that  has  gone  on  under  free- 
dom of  competition  and  puts  the  State  in  the  attitude  of 
setting  up  a  policy  which  is  the  sole  work  of  unrestricted  and 
undictated  competition  as  the  acme  of  perfection  for  time  to 
come. 

Legislation  of  this  kind  disregards  the  fact  that  had  a 
standard  policy  been  enacted  ten  or  fifteen  years  ago,  repre- 
senting the  then  status  of  development  in  life-insurance 
forms  and  policies,  the  standard  policy  would  have  been 
incomparably  inferior  to  the  one  now  set  up. 

In  the  hearing  on  the  standard  policy  law,  the  repre- 
sentative of  a  foremost  company  made  the  contention  that 
his  company  objected  to  the  standard  policy,  not  because  it 
was  unwilling  to  do  all  that  the  standard  policy  required  in 
the  service  of  the  policyholder,  but  because  it  was  unwilling 
to  forego  the  privilege  of  doing  more.  As  the  standard- 
policy  law  of  New  York  was  enacted,  it  permitted  the  insur- 
ance commissioner  to  approve  other  forms,  but  made  the 
further  evolution  of  the  policy  most  difficult. 

After  two  years  of  disappointing  experiment  the  New 
York  Legislature  recognized  the  necessity  for  repeal  and 
repealed  the  standard-policy  law  in  1909,  substituting 


144  The  Romance  of  Life  Insurance. 

"  standard-clause  "  provisions  of  the  type  recommended  by 
the  Committee  of  Fifteen.  In  signing  the  new  law,  Gov- 
ernor Hughes  went  on  record  as  follows : 

On  the  report  of  the  Armstrong  Committee,  in  1906,  it  was 
recommended  that  standard  forms  of  policies,  other  than  industrial 
policies,  should  be  issued  in  this  State  by  all  life-insurance  com- 
panies doing  business  here.  The  law,  as  enacted,  limited  the 
requirement  to  domestic  companies.  It  has  been  insisted  that  this 
placed  our  own  companies  at  a  disadvantage.  The  desirability  of 
having  policies  in  simple,  concise  form,  without  ambiguity  of  con- 
cealed traps,  can  not  be  gainsaid.  This  result,  however,  may  be 
gained  by  providing  for  standard  clauses  and  by  requiring  the 
approval  of  the  superintendent  as  to  forms  of  policies  used  in  this 
State.  The  present  bill  provides  that  all  policies,  other  than  indus- 
trial policies,  which  are  issued  or  delivered  in  this  State,  shall 
contain  certain  specified  standard  provisions,  and  that  with  respect 
to  other  matters,  the  form  of  all  policies  of  life  or  endowment 
insurance  issued  or  delivered  in  this  State  shall  be  subject  to  the 
superintendent's  approval.  This  I  believe  to  be  a  justifiable  change. 

Probably  the  most  serious  legislative  departure  of  all 
was  legislating  the  companies  into  an  arbitrary  minimum  of 
security  through  contingency  surplus  laws,  which  allow 
only  a  certain  amount  of  surplus,  or  unassigned  funds, 
determined  on  a  sliding  scale  by  size  of  the  company,  and 
no  more.  The  limitation  of  available  surplus,  or  unassigned 
funds,  in  life  insurance,  limits  the  security  of  the  company  by 
legislative  act,  and  is  thus  at  variance  with  previous  legisla- 
tion. 

This  act  had  not  been  on  the  books  of  New  York  State 
two  years  before  the  contention  that  it  was  a  dangerous  law, 
made  against  it  by  the  insurance  companies,  was  more  than 
proved  in  the  money  panic  of  December,  1907.  Under  the 
contemplated  action  of  the  new  law,  the  depreciation  in 
securities  at  that  time  was  more  than  the  contingency  sur- 


Life-insurance  Legislation.  145 

plus,  and  therefore  sufficient  to  make  certain  stable  com- 
panies technically  insolvent. 

Section  97  of  the  New  York  Insurance  Laws  operates 
indirectly  to  fix  the  amount  of  wages  to  be  paid  life-insurance 
workers.  In  the  words  of  President  Kingsley,  of  the  New 
York  Life,  it  might  properly  be  called  "  An  act  to  fix  the 
wages  or  compensation  of  life-insurance  agents,  examining 
physicians,  inspectors,  agency  directors,  cashiers  and  of 
clerks,  stenographers  and  office  boys  engaged  in  the  business 
of  life  insurance,  and  to  fix  them  low."  Mr.  Kingsley  com- 
mented : 

We  have  heard  much  in  this  country,  and  are  hearing  much  now, 
about  laws  to  favor  men  who  work  —  laws  that  will  raise  wages 
and  raise  the  standard  of  living  above  that  of  other  countries  —  but 
I  think  this  is  the  first  attempt  to  lower  wages  by  law  or  to  fix  by 
law  a  maximum  wage  for  any  large  body  of  workers.  The  law  not 
only  prescribes  a  maximum  amount  that  may  be  paid  by  a  life  com- 
pany for  new  business,  but  it  goes  farther  and  prescribes  how  this 
amount  may  be  parceled  out,  and  when  it  may  be  paid.  It  has 
already  reduced  the  compensation  of  a  body  of  men  whose  work  is 
most  helpful  to  the  State,  and  has  driven  a  large  number  of  them 
out  of  business. 

Limiting  the  amount  of  new  business  which  any  com- 
pany can  write  during  the  year,  is  another  radical  departure. 
While  in  the  days  of  deferred-dividend  policies  and  less  rigid 
accountability  of  life-insurance  funds  such  a  measure  has 
had  the  support  of  some  important  life-insurance  men,  it 
would  appear  that  with  the  changed  conditions  in  life  insur- 
ance the  reason  for  supporting  this  measure,  even  by  the  few 
men  that  at  different  times  have  proposed  something  of  the 
sort,  has  been  largely  overcome.  It  has  no  parallel  in 
American  legislation,  save  the  much-condemned  "  trust- 
busting  "  theory  of  William  J.  Bryan  to  restrict  the  activi- 
ties of  a  corporation  when  it  controls  fifty  per  cent  of  any 


146  The  Romance  of  Life  Insurance. 

given  commodity.  No  one  life-insurance  company  has  ever 
'controlled  any  large  fraction  of  fifty  per  cent  of  the  insur- 
ance output,  and  the  percentage  of  any  one  company  to  the 
aggregate  is  diminishing.  Beyond  this,  no  life-insurance 
company  has  any  special  privileges  that  would  make  monop- 
oly possible.  The  incisive  logic  of  Governor  Hughes,  who 
during  the  1908  campaign  ridiculed  the  Bryan  monopoly 
limitation  plan,  applies  no  less  forcibly  to  the  New  York 
insurance  laws.  Moreover,  new  legislation  has  operated  to 
reduce  field  organizations,  by  the  reduction  in  commissions, 
and  consequently  has  had  a  direct  effect  upon  the  volume  of 
life  insurance  placed,  without  further  limitation.  Many  of 
the  companies  whose  rank  and  output  have  been  thus 
depleted  by  legislative  restrictions  are  innocent  victims, 
whose  aggressive  operations  not  even  the  most  radical  legis- 
lator would  knowingly  have  had  curtailed.  The  unoffend- 
ing agent  has  suffered  most. 

In  attempting  to  restrict  severely  the  larger  companies, 
who  were  the  chief  offenders  in  life-insurance  matters,  with- 
out regard  to  the  fact  that  the  reprobate  practices  in  these 
companies  have  been  entirely  discarded,  class  legislation  has 
been  inaugurated. 

A  review  of  life-insurance  legislation  shows  not  only  the 
introduction  of  new  ideas  into  American  legislation,  but  a 
trend  toward  paternalism  which  is  the  more  to  be  deplored 
since  it  seems  to  be  taken  unmeditatingly.  Freedom  of  con- 
tract and  individual  right  to  unrestricted  competition  has 
marked  the  progress  of  life  insurance  in  America  and  made 
its  achievements  possible.  There  were  no  evils  developed  in 
the  life-insurance  investigation  that  could  not  have  easily 
been  removed  for  all  time  by  the  enactment  of  a  few  of  the 
laws  which  have  been  placed  on  the  books,  such  as  expressly 
forbidding  such  expenditures  as  campaign  contributions,  or 


Life-insurance  Legislation.  147 

calling  for  publication  of  all  details  of  each  item  spent  before 
legislative  bodies  in  direct  or  indirect  influence  upon  legis- 
lation and  compelling  annual  dividend  accounting. 

Above  all,  the  evils  developed  in  life  insurance  were 
brought  about  by  the  deferred-dividend  system,  in  which  the 
policyholders'  dividends  were  withheld  for  a  period  of  fifteen 
or  twenty  years,  or  other  fixed  period,  and  in  the  meantime 
funds  were  accumulated  without  accountability  to  the  policy- 
holder  or  definite  liability  to  the  company. 

Consulting  Actuary  S.  H.  Wolfe,  who  was  active  in  the 
service  of  the  State  insurance  commissioners  during  the  days 
of  the  investigation  and  is  high  in  the  counsels  of  many 
State  insurance  commissioners,  sums  up  his  observations 
upon  the  abuses  which  have  brought  about  so  much  unjusti- 
fiable legislation.  Mr.  Wolfe  states: 

The  most  surprising  thing  in  connection  with  the  expose  of 
abuses  in  the  insurance  world  is  not  that  they  have  reached  such 
proportions,  but  that  the  evils  have  been  of  such  slight  magnitude 
when  the  large  sums  at  issue  are  taken  into  consideration.  Repre- 
hensible as  the  facts  complained  of  have  been,  it  should  be  borne  in 
mind  that  at  no  stage  of  the  proceedings  was  it  shown  that  the  pri- 
mary interests  of  the  policyholders  were  in  jeopardy.  The  evils 
which  were  exposed  as  a  result  of  the  investigations  dealt  almost 
exclusively  with  the  profits  which  policyholders  might  have  expected 
as  a  result  of  the  investment  feature  of  the  business.  In  other 
words,  the  trust  which  had  been  placed  in  the  hands  of  the  officers 
of  insurance  companies  was,  theoretically  at  least,  divided  into  two 
grand  divisions,  the  first  dealing  with  the  question  of  the  protection 
element  of  the  contracts  between  the  companies  and  their  insured; 
and,  second,  the  investment  element,  dealing  with  the  profits  which 
would  result  from  fortunate  investments  and  a  conservative  and 
economical  administration.  I  can  not  recall  at  this  moment  an 
important  instance  of  the  trustees'  dereliction  to  their  duties  in  the 
first  division,  and  it  requires  no  extended  consideration  of  the  sub- 
ject to  realize  that,  after  all,  the  principal  function  of  an  insurance 
company  is  to  furnish  to  the  insured  satisfactory  evidence  that  at  his 


148  The  Romance  of  Life  Insurance. 

death  the  proceeds  of  his  policy  will  be  paid  to  the  designated  bene- 
ficiary. Important  as  the  other  matter  is,  it  must  pale  into  insignifi- 
cance in  comparison  with  this  primary  object. 

A  law  calling  for  an  annual  accounting  of  all  deferred- 
dividend  surplus  and  the  reckoning  of  deferred-dividend 
surplus  as  a  tentative  liability,  would  at  once  have  done  away 
with  the  evils  of  large  unaccounted  funds  left  within  possi- 
bility of  abuse.  In  supplement  to  this  deferred-dividend 
policies  might  have  been  forbidden  further  issuance.  A 
simple  law  of  this  kind  would  have  put  the  participating 
companies  upon  a  basis  of  annual  dividend  competition, 
which  could  be  looked  to  to  insure  the  largest  possible  econ- 
omies in  the  service  of  the  policyholder,  in  order  to  compete 
successfully  upon  the  size  of  the  annual  dividend  and  the 
lowness  of  cost  of  insurance. 

Drastic  as  life-insurance  legislation  has  been,  it  has 
remained  for  only  two  States,  Wisconsin  and  Texas,  to  enact 
laws  which  absolutely  necessitated  the  withdrawal  of  the 
majority  of  the  important  companies  from  these  States.  The 
withdrawal  of  the  companies  from  Texas  followed  the  enact- 
ment of  a  bill  called  the  Robertson  law,  which  compelled  the 
investment  of  seventy-five  per  cent  of  the  reserves  of  Texas 
policyholders  in  Texas  securities,  and  then  called  for  the 
deposit  of  these  securities  in  localities  in  Texas  where  the 
same  would  be  taxed.  The  law  was  passed  in  the  legislature 
and  frankly  advocated  because  of  the  extra  revenue  expected 
in  the  Texas  communities  in  which  the  deposit  of  security 
was  to  be  made. 

Fortunately,  the  1909  Legislature  of  Texas  recognized 
the  heinousness  of  this  enforced  deposit  for  additional  taxa- 
tion and  repealed  and  reenacted  the  Robertson  law  to 
remove  the  tax  feature. 

Wisconsin  legislation  is  a  general  mist,  repeatedly  shown 


Life-insurance  Legislation.  149 

to  be  incapable  of  consistent  construction  by  the  men  who 
perpetrated  it,  and  introducing,  among  other  absurd 
departures,  a  measure  that  fixes  the  maximum  premium  that 
may  be  charged  on  the  different  forms  of  life  insurance. 
This  fixing  of  a  maximum  price  of  insurance  is  without 
parallel  in  American  legislation.  The  nearest  analogy  is 
the  fixing  of  maximum  transportation  rates  for  railroads, 
and  this  can  not  be  called  a  parallel,  since  the  railroad  is  a 
corporation  endowed  with  corporate  privileges  of  eminent 
domain,  and  for  practical  considerations  can  not  be  con- 
trolled by  sole  recourse  to  free  competition. 

Life-insurance  companies  are  given  no  special  privileges, 
and  are  subject  to  active  and  unrestricted  competition  and 
are  thus  not  to  be  paralleled  with  transportation  or  the 
public  utilities. 

Wisconsin  legislation  is  valuable  as  a  commentary  upon 
the  impossibility  of  enacting  workable  scientific  legislation 
through  the  recommendations  of  men  not  scientifically  quali- 
fied by  knowledge  and  experience  to  understand  the  neces- 
sities of  life  insurance  and  draft  proper  legislation.  Scientific 
legislation  of  any  kind  can  not  be  enacted  as  compromises. 
It  should  in  all  cases  be  recommended  by  competent  and  dis- 
interested experts. 

Luckily  for  life  insurance,  the  insurance  commissioners 
of  the  country  show  disposition  to  move  more  slowly  and 
advisedly  in  recommending  legislation,  and  to  act  with  a 
knowledge  and  a  study  of  conditions  in  other  States,  in 
order  to  avoid  conflict.  A  life-insurance  corporation  is  abso- 
lutely and  indisputably  controlled  by  the  home  State,  and  has 
no  standing  in  other  States  save  such  as  the  foreign  State 
sees  fit  to  give  it.  It  is  therefore  possible  for  any  one  State 
to  legislate  for  the  insurance  companies  of  all  other  States, 
exacting  compliance  with  its  laws  upon  the  penalty  of  other- 


150  The  Romance  of  Life  Insurance. 

wise  denying  admission  of  the  foreign  company  to  the  State. 
If  abused,  this  condition  would  leave  interstate  life  insurance 
in  hopeless  confusion,  where  it  did  not  absolutely  prohibit  it. 
As  it  is,  laws  of  the  different  States  conflict  more  or  less  and 
awkwardly  involve  the  business  of  interstate  life  insurance. 

An  example  of  this  has  just  been  shown  in  the  action  of 
Wisconsin  and  Texas,  where  the  retiring  companies  were 
forced  to  lose,  as  a  penalty  for  their  withdrawal,  the  splendid 
agency  organizations  which  they  had  built  up  in  these  States 
at  large  cost  to  themselves.  These  agency  organizations, 
moreover,  supplied  to  the  States  in  which  they  operated  an 
economic  factor,  and,  through  their  disintegration,  the  local- 
agency  forces  were  not  only  left  without  employment,  after 
years  of  labor  in  upbuilding  a  clientage,  but  the  community 
itself  suffered  through  the  arrested  activities  of  these  men. 

The  principle  of  one  State  legislating  for  another  is  evi- 
denced in  the  paternal  dictate  attempted  by  some  States  as 
to  salaries  of  executive  officers  of  life-insurance  companies. 
Thus,  Missouri  says  that  no  life-insurance  executive  shall  be 
paid  more  than  $50,000  per  annum,  if  such  life-insurance 
company  would  do  business  in  Missouri.  Regulation  of 
salaries  in  any  corporation  is  a  radical  departure  in  itself, 
even  in  those  States  which  go  no  farther  than  an  attempt 
to  regulate  the  maximum  salary  paid  to  officers  of  home  life 
companies. 

President  Sylvester  C.  Dunham,  of  the  Travelers'  Insur- 
ance Company,  refers  to  this  phase  of  the  situation  in  con- 
cluding that  New  York  has  lost  a  golden  legislative  oppor- 
tunity. Mr.  Dunham  says : 

A  State  may  capriciously  and  unreasonably  prescribe  the  terms 
upon  which  foreign  corporations  may  be  permitted  to  do  business 
therein.  Such  authority  should  be  exercised  with  the  greatest  delib- 
eration, foresight  and  wisdom,  or  reprisals  and  other  injurious  con- 


Life-insurance  Legislation.  151 

sequences  will  surely  follow.  New  York  might  have  enacted  a  law 
based  upon  the  principle  that  it  is  the  duty  of  a  State  to  govern  the 
domestic  affairs  of  its  own  corporations,  as  much  in  detail  and  in 
particular  as  may  be  found  necessary  for  the  welfare  of  the  public, 
and  that  it  may  erect  standards  of  solvency  and  integrity  which 
must  be  maintained  by  companies  of  other  States  desiring  admission. 
But  like  duties,  responsibilities  and  privileges  are  imposed  upon  and 
enjoyed  by  every  other  State.  This  is  a  principle  that  should  be 
conceded  when  the  other  is  asserted,  and  so  far  as  foreign  compa- 
nies are  .concerned  the  regulation  of  their  domestic  affairs  should 
be  left  to  domestic  authority.  New  York  companies  can  not  consist- 
ently complain  of  a  law  in  Missouri  restricting  the  salaries  they  may 
pay  to  their  officers  so  long  as  New  York  has  a  statute  restricting 
the  compensation  Missouri  companies  may  pay  their  agents,  the  law 
to  be  obeyed  in  both  cases  under  penalty  of  expulsion. 

An  act  recognizing  these  principles  would  have  been  far  more 
effective  than  the  present  arbitrary  assumption  of  the  right  to  legis- 
late for  all  the  States,  and  would  have  commended  itself  not  only 
to  the  taste,  but  to  the  judgment  of  others.  In  the  opinion  of  many, 
New  York  just  missed  the  greatest  opportunity  that  has  presented 
itself  in  the  history  of  insurance  to  promote  the  deserving  cause  of 
wise,  conservative  and  uniform  regulation  of  insurance  companies. 

To  advance  best  the  cause  of  life  insurance,  which  is  at 
heart  the  cause  of  fellowman  and  sister-woman,  legislators 
of  the  different  States  must  rise  above  State  lines,  and  view 
the  legislation  which  they  would  enact  and  repeal  as  a 
national  problem  of  corporations  doing  interstate  business. 

The  State  that  enacts  onerous  or  restrictive  legislation, 
or  is  greedy  in  its  calls  for  taxation,  fees  and  licenses,  sub- 
jects its  home  companies  to  retaliation  in  kind  in  many  of  the 
other  States  where  retaliatory  laws  are  in  force.  Retalia- 
tory legislation  of  any  kind  is  vicious,  and  a  general  dis- 
position on  the  part  of  the  State  legislator  to  survey  life- 
insurance  legislation  as  if  he  were  a  congressman  rather 
than  a  State  representative  will  do  away  with  the  cause  for 
retaliatory  laws. 


152  The  Romance  of  Life  Insurance. 

There  must  always  be  in  legislation  a  clear  conception 
between  Utopian  hopes  and  the  legislation  attainable.  The 
new  laws  appertaining  to  election  of  directors,  to  give  popu- 
lar force  to  the  meaningless  alliteration  "  Mutualize  the 
Mutuals,"  afford  illustration  of  legislators  failing  to  recog- 
nize their  limitations.  The  disgraceful  scramble  for  proxies 
in  the  New  York  Life  and  the  Mutual  Life  under  the  first 
policyholders'  election  following  the  Armstrong  enactment, 
kept  insurance  in  a  turmoil,  cost  the  policyholders  thou- 
sands of  dollars  in  meeting  the  requirements  of  the  acts,  in 
supplying  policyholders'  lists  and  in  the  conduct  of  the  elec- 
tion. The  result  was  to  reelect  the  board  of  directors  nom- 
inated by  the  company  in  both  instances.  After-events 
showed  the  real  character  of  the  opposition  ticket,  bringing 
about  the  penal  indictment  of  Scrugham,  the  secretary,  and 
showing  what  desperate  chances  the  managers  and  financiers 
of  the  opposition  movement  were  willing  to  take  in  order  to 
get  control  of  these  companies.  It  does  not  follow  that  the 
many  distinguished  and  worthy  men  who  were  on  the  oppo- 
sition ticket  could  have  been  influenced  in  any  unworthy 
abuse  of  their  offices,  yet  it  is  the  fact  that  hundreds  of  thou- 
sands of  dollars  were  spent  by  not  disinterested  persons  to 
achieve  their  election.  Again,  in  the  recent  election  of  the 
Northwestern  Mutual,  under  the  new  Wisconsin  laws,  prob- 
ably some  $25,000  of  the  policyholders'  money  was  unneces- 
sarily spent  in  the  reelection  of  the  board  of  directors. 

Incidentally  these  election  laws  call  for  the  disclosure  of 
policyholders'  names  and  addresses  and  other  information 
connected  with  the  policyholders'  private  affairs,  which  in 
many  cases  the  policyholder  did  not  care  to  have  known. 
Far  from  being  beneficial,  the  New  York  law  and  the  Wis- 
consin law  hold  open  opportunity  for  freebooting  adven- 
turers to  attempt,  by  the  wholesale  use  of  money  and 


Life-insurance  Legislation.  153 

misrepresentation,  to  obtain  control  of  the  huge  assets  now 
in  charge  of  the  men  under  whose  care  they  have  been  built 
up  and  conserved. 

In  this  democratic  government  we  achieve  a  popular 
democracy  in  a  more  or  less  indirect  way,  although  the 
theory  of  democracy  is,  of  course,  an  open  field  for  all  can- 
didates, independent  of  the  selection  of  parties,  conventions, 
caucuses  and  even  individual  dictation  of  some  man  high  in 
power  as  to  who  should  be  nominated. 

With  this  abiding  limitation  of  democracy,  in  spon- 
taneously realizing  the  spontaneous  preferences  of  a  large 
and  heterogeneous  constituency,  the  legislator  might  well 
realize  the  impracticability  of  obtaining  spontaneous  nomina- 
tions for  a  directorate  without  a  parallel  organization,  and 
withal  a  selection  that  would  bring  out  better,  more  respon- 
sible, or  more  worthy  nominees.  Despite  the  contention 
that  the  president  of  the  mutual  company  wielding  from  his 
office  policyholders'  proxies  makes  for  despotic  form  of 
government,  twice  within  a  generation  has  the  president  of 
one  of  the  Big  Three  mutual  companies  been  dethroned 
through  popular  demand,  and  in  each  of  the  other  two  large 
mutual  companies  has  a  chief  officer,  and  in  fact  the  whole 
regime,  been  forced  out  of  power,  and  in  one  of  these 
cases  the  managerial  control  rested  in  capital  stock.  This 
alone  indicates  the  power  of  publicity  in  achieving  changes 
when  necessary,  and  points  the  lack  of  necessity  for  laws 
which  would  only  be  useful  for  a  similar  need  at  a  time 
when  publicity  itself  was  working  the  cure. 

Former  Commissioner  Rittenhouse  of  Colorado,  one  of 
the  most  forcible  men  in  life  insurance,  whose  name  was  a 
terror  to  the  unworthy  in  all  branches  of  insurance,  stated 
some  legislative  "  don'ts  "  which  might  well  be  pasted  in  the 
hat  of  every  legislator.  Here  are  Rittenhouse's  "  don'ts  " : 


154  The  Romance  of  Life  Insurance. 

Don't  compel  insurance  companies  to  invest  a  portion  of  their 
funds  in  your  State.  If  your  State  has  good  investments,  insurance 
money  will  come  without  compulsion.  Companies  should  be  per- 
mitted to  place  their  investments  where  they  will  bring  the  best 
results,  regardless  of  State  lines. 

Don't  close  the  door  to  improvement  in  policy  contracts  by  estab- 
lishing an  ironclad  standard  form.  Equally  good  results  can  be 
accomplished  by  prohibiting  undesirable  clauses  and  requiring  cer- 
tain desirable  provisions. 

Don't  undertake  to  regulate  by  law  the  remuneration  of  agents 
or  employees  of  insurance  companies,  and  don't  try  to  limit  the  vol- 
ume of  business  or  the  size  of  insurance  companies. 

These  drastic  measures  may  be  constitutional,  but  they  are 
un-American,  and  unnecessary  to  correct  abuses  in  insurance.  Effi- 
cient supervision  and  systematic  and  fair  publicity  will  overcome 
the  difficulties  which  these  drastic  laws  are  designed  to  remove,  and 
they  will  do  it  without  the  serious  loss  of  insurance  protection  which 
has  followed  the  ill-considered  action  of  New  York  and  Wisconsin. 

Don't  raise  taxes.  On  the  contrary,  inasmuch  as  the  taxes  on 
premiums  come  from  the  pockets  of  the  policyholders,  they  should 
be  reduced  to  a  reasonable  point,  and  if  justice  is  to  prevail,  they 
should  be  made  uniform  throughout  the  States  of  the  Union. 

Legislation  that  restricts  where  competition  and  free- 
dom of  contract  would  better  serve  the  progress  of  life  insur- 
ance and  the  evolution  of  desirable  life-insurance  forms  and 
plans,  is  a  detriment  to  the  public  it  is  designed  to  serve. 
The  earlier  such  legislation  is  repealed  the  better  for  the 
public  and  the  policyholder.  Legislation  that  undertakes  the 
details  of  the  management  of  a  company,  and  to  fix  the 
arbitrary  limits  of  safety  and  solvency,  robs  the  policy- 
holders  of  the  judgment  of  the  paid  officials  enlisted  in  their 
service,  and  courts  possible  disaster  for  the  institution.  Such 
legislation  may  be  likened  to  the  fixing  of  an  artificial  bar- 
rier out  at  sea  to  prevent  the  wreck  of  vessels  upon  rocks 
nearer  shore,  so  that  the  vessel,  instead  of  having  merely  to 


Life-insurance  Legislation.  155 

reckon  with  the  rocks,  is  now  placed  in  additional  danger 
from  the  barrier. 

The  evils  of  deferred-dividend  insurance,  the  misleading 
estimates  which  brought  about  so  much  disappointment  and 
were  productive  of  the  release  of  so  much  pent-up  indig- 
nation at  the  time  of  the  expose,  are  now  legally  placed 
beyond  power  of  recurrence. 

Publicity  and  competition  are  the  elements  that  must  be 
looked  to  for  healthy  and  favorable  conditions  in  life  insur- 
ance. The  trend  of  life-insurance  legislation,  since  the 
investigation,  has  been  paternalistic  to  a  degree  that  menaces 
Anglo-Saxon  freedom  of  contract. 

Life  insurance  was  borrowed  from  England,  where  old- 
line  life-insurance  companies  have  been  in  continuous  opera- 
tion for  one  hundred  and  fifty  years.  The  legislation  that 
governs  our  life  insurance,  however,  has  been  an  American 
development,  as  the  companies  operate  in  Great  Britain 
under  a  system  of  thorough  publicity,  in  substitution  of  all 
restrictive  and  paternalistic  supervision  and  legislation.  The 
system  has  been  most  successful  in  England,  and  the  com- 
panies have  been  built  up  strong  and  worthy.  Publicity, 
complete  and  thorough,  is  what  is  needed  in  American  life 
insurance,  together  with  rigid  accountability  of  all  surplus 
and  reserve  funds.  Beyond  this,  prevent  by  law  —  so  far  as 
law  can  prevent — vicious  practices  in  rebate,  false  estimates, 
misrepresentations,  discriminatory  contracts,  special  priv- 
ileges and  control  of  subsidiary  corporations  and  other 
reprehensible  practices  which  should  have  the  disapproval 
and  penalties  of  legal  forbiddance. 

It  is  to  be  hoped  that  the  more  obnoxious  laws  will 
have  early  modification  or  repeal,  and  that  the  principles  of 
freedom  and  publicity  successfully  mingled  will  have  larger 
consideration  in  future  American  legislation.  Above  all, 


156  The  Romance  of  Life  Insurance. 

it  is  to  be  hoped  that  the  States  will  legislate  as  part  of  a 
union,  and  not  as  sovereignty  in  themselves,  wholly  disre- 
garding the  exigencies  of  a  business  that  calls  for  separate 
compliance  with  the  laws  of  every  State  in  the  Union  in 
which  the  corporations  doing  this  business  would  operate. 

A  scholarly  valedictory  upon  present-day  life-insurance 
legislative  problems  is  contained  in  the  following  words  of 
President  DeBoer,  of  the  National  Life  of  Vermont : 

We  do  not  doubt  but  that  life  insurance  has  a  greater  and  better 
future  before  it  than  in  the  past,  because,  in  fact,  it  has  grown  better 
and  more  useful  to  society  from  the  earliest  date;  but  the  immedi- 
ate effect  of  new  laws,  growing  out  of  investigations,  limitations  and 
endorsed  changes  in  practice,  will  be  to  reduce  vastly  the  volume  of 
solvent,  safe  and  enduring  life  insurance  written,  and  this  must  be 
regarded  as  a  public  misfortune,  on  account  of  its  adverse  effects  on 
thrift,  on  sound  moral  and  family  conduct  and  on  the  provision 
which  dependent  beneficiaries  need  even  more  in  an  age  of  quick 
expenditures  than  in  times  of  a  more  quiet  and  simple  life.  The 
State,  we  believe,  should  demand  an  adequate  test  of  solvency,  a 
mutual  practice,  an  equitable  distribution  of  life  benefits,  freedom 
from  theft  of  funds,  from  subversion  of  funds,  from  political  con- 
trol and  from  entangling  business  alliances,  but,  at  the  same  time, 
the  State  should  proceed  slowly  in  exacting  an  unlimited  control 
and  direction  over  the  work  and  economies  of  a  business,  the  prom- 
ises and  success  of  which  it  does  not  undertake  to  guarantee  or 
pledge  itself  to  assume  and  discharge.  It  should  and  must  leave  the 
individual  some  prudential  liberty  to  direct  and  act  on  judgment  and 
in  the  open,  or  else  substitute  the  public  guarantee  and  compulsion 
for  that  individualism  and  for  commercial  and  industrial  independ- 
ence, a  step  in  degradation  of  democracy  which  our  people  should 
never  take,  and,  we  believe,  will  not  take, 


RALPH  W.  BRECKENRIDGE. 


ER   X. 
XING  A  TAX, 


ran  be  made  : 


•gt  n  your 


fe    insurance    at 
of  life  i 

chap- 
j  answL 

:veply 
'  You  are 
does  cost 


;3*H  lAfl 


tun  ate  I 

der  does  n<  his  grievance  in  this  direc' 

he  enormity  of  :  heavy  increase  in  hi 

ued  by  a  direct  tax  but  is  ab 
upon  him  in  taxing  the  corporation  of  which  1; 
1  paying  unit.     Before  taking  u; 
xcess  insurance  cost  to  policyhc ; 
•n,  a  little  evidence  from  offic 

rQo6,"  says  Presv 

innual  address  to  thr 
compan. 


RALPH  W.  BRECKENRIDGE,  Chairman,  Insurance 
Committee  of  the  American  Bar  Association  (1909),  and 
vigorous  champion  for  insurance  taxation  reform. 


:NRI; 


CHAPTER   X. 
TAXING  A  TAX. 

TO  the  policyholder  clamoring  for  life  insurance  at 
reduced  cost,  and  to  the  critic  in  general  of  life  insur- 
ance who  contends  that  its  premiums  are  too  high,  this  chap- 
ter on  life  insurance  is  especially  directed,  to  answer  the 
clamor  of  the  former  by  agreement  with  the  latter.  Reply 
can  be  made  to  the  two  classes  just  enumerated:  "  You  are 
right  in  your  clamor ;  keep  it  up.  Life  insurance  does  cost 
too  much."  Or,  in  equivalent  answer :  "  Yes,  premiums  are 
too  high.  They  should  and  can  be  reduced." 

Both  these  replies  involve  but  a  matter  of  correcting 
taxation  evils  imposing  excessive,  burdensome  and  unjusti- 
fiable taxation  upon  the  policyholder.  Unfortunately  the 
policyholder  does  not  realize  his  grievance  in  this  direction, 
or  the  enormity  of  it,  since  the  heavy  increase  in  his  insur- 
ance costs  is  not  occasioned  by  a  direct  tax  but  is  abstractly 
put  upon  him  in  taxing  the  corporation  of  which  he  is  the 
concrete  and  paying  unit.  Before  taking  up  the  wherefore 
and  why  of  excess  insurance  cost  to  policyholders  because  of 
excessive  taxation,  a  little  evidence  from  official  sources  illu- 
minates its  reality. 

"  In  the  year  1906,"  says  President  Taylor,  of  the  Con- 
necticut Mutual,  in  an  annual  address  to  the  policyholders  of 
the  company,  "  forty-two  life  companies,  reporting  their 
transactions  to  the  Superintendent  of  Insurance  of  New 
York,  returned  to  their  policyholders  in  dividends  $39,726,- 
372.01 ;  and  in  that  year  these  companies  were  compelled  to 
pay  to  the  several  governments  in  whose  jurisdiction  they 

169 


160  The  Romance  of  Life  Insurance. 

were  licensed  to  transact  business,  taxes  in  various  forms  in 
the  sum  of  $10,149,816.83,  or  26.22  per  cent  of  total  amount 
of  dividends  returned."  Mr.  Taylor  concludes :  "  All  reme- 
dial measures  will  prove  futile  without  the  hearty  support  of 
the  men  who  pay  the  tax  —  the  policyholders." 

Stephen  H.  Rhodes,  late  president  of  the  John  Hancock 
Mutual  Life,  in  the  desire  to  impress  the  facts  upon  the 
policyholder,  that  the  policyholder  might  in  turn  put  his 
impress  upon  the  legislator,  reported : 

The  business  of  life  insurance  will  not  "run  itself"  any  more 
than  any  other  business.  It  needs  laws  for  its  proper  guidance,  but 
laws  made,  after  due  consideration  and  knowledge,  by  men  capable 
by  experience  of  grappling  with  all  the  delicate  and  complex  prob- 
lems of  the  business.  Many  of  these  new  laws  impose  additional 
costs,  either  direct  or  indirect,  upon  the  transaction  of  the  company's 
business,  and  these  additional  costs  fall  eventually  upon  the  policy- 
holder.  The  policyholders,  when  they  awaken  to  the  fact,  can  do 
much  to  enlighten  the  legislators,  particularly  as  to  the  excessive 
taxation  of  the  companies,  which  amounted  in  1006  to  about  $9,000,- 
ooo  in  excess  of  the  amount  necessary  to  maintain  the  various  insur- 
ance departments,  an  amount  equal  to  over  twenty-two  per  cent  of 
the  dividends  paid  policyholders.  Compared  with  this  amount,  that 
paid  for  the  several  items  so  strongly  assailed  in  the  restrictive  laws 
is  so  insignificant  as  to  be  unworthy  of  notice. 

Viewing  the  life-insurance  premium  as  a  self-imposed 
tax  to  cover  an  unescapable  hazard,  President  H.  B.  Stokes, 
of  the  Manhattan  Life,  designated  a  life-premium  tax,  in  offi- 
cial report  to  the  policyholders  of  his  company,  as  a  tax  upon 
a  tax,  "  that  works  against  the  best  interest  of  the  thrifty, 
provident  people  of  the  State  who  are  providing  against 
future  contingencies."  Mr.  Stokes  objects  to  taxation  many 
times  greater  than  the  cost  of  running  the  various  insurance 
departments  and  concludes  that  a  system  taxing  the  equiva- 
lent of  twenty-five  per  cent  of  the  amount  paid  out  in  divi- 
dends to  policyholders  reduces  the  policyholders'  dividends 


Taxing  a  Tax.  161 

to  just  that  extent.  "  You  will  be  serving  your  best  inter- 
ests," continued  President  Stokes,  "  and  the  best  interests  of 
your  friends  and  neighbors  who  are  insured  in  any  company 
if  you  will  use  your  influence  with  your  local  representative 
and  explain  the  matter  to  him  in  its  true  bearing." 

Corroboration  of  the  excessive  and  onerous  burden  of 
taxation  can  be  produced  from  the  records  of  every  old-line 
life-insurance  company  operating  in  the  United  States.  To 
the  statements  quoted,  which  are  typical  utterances  of  life- 
insurance  officialdom  to  policyholders,  is  added  by  way  of 
conclusion  the  following,  from  the  annual  report  of  the 
^Etna  Life  Insurance  Company,  whose  president  is  both  a 
high  life-insurance  authority  and  a  United  States  senator: 

It  is  well  for  policyholders  to  remember  that  all  taxes,  fees,  and 
other  expenses  required  by  law  or  by  State  authority,  eventually 
find  their  way  into  the  premiums  to  be  paid  by  policyholders  or 
reduce  the  dividends  of  participating  policyholders,  and  become 
therefore  a  tax  upon  the  insured.  It  is  reasonably  contended  that 
there  should  be  no  tax  whatever  upon  life-insurance  premiums, 
because  it  operates  as  a  special  tax  laid  upon  the  thrift,  prudence 
and  forethought  of  the  policyh older.  If  such  a  tax  is  justifiable  at 
all  it  should  be  kept  at  the  lowest  possible  rate.  The  policyholder 
should  use  his  influence  with  the  legislative  powers  to  this  end. 
There  is  probably  no  other  business  that  would  stand  the  tax  upon 
its  gross  receipts  which  is  imposed  by  most  States  upon  life-insur- 
ance premiums. 

The  JEtna,  issues,  in  addition  to  participating  or  dividend- 
bearing  policies  made  the  subject  of  comment,  what  is 
known  as  "  nonparticipating  "  policies  or  "  stock-rate  "  pol- 
icies. Nonparticipating  insurance  calls  for  no  dividend 
return,  but  is  issued  at  lower  rates  of  premium  than  partic- 
ipating policies.  Arguments  urged  by  the  president  of  the 
JEtna,  to  show  how  taxation  comes  home  to  burden  the  par- 
ticipating policyholders,  are  equally  forceful  when  applied 


162  The  Romance  of  Life  Insurance. 

to  nonparticipating  insurance.  In  nonparticipating  insur- 
ance the  cost  of  taxation  has  been  taken  into  consideration, 
and  has  added  a  quota  of  two  per  cent  or  more  to  the  annual 
premium. 

Time-honored  and  primary  principles  of  enlightened 
taxation  dictate  fixing  taxes  to  bear  lightly  upon  necessities, 
to  be  relatively  heavy  upon  luxuries,  and  only  placed  in  more 
radical  form  in  restraint  of  indulgence  more  or  less  inimi- 
cal to  public  policy,  while  public,  religious  and  charitable 
institutions  that  forward  public  policy  are  held  immune  from 
the  tax-gatherer.  Accordingly  laces,  silks,  foreign  wares, 
tobacco  and  like  luxuries  are  heavily  taxed,  while  plain  foods 
and  cheap  clothing  constituting  the  necessities  of  life  escape 
lightly,  and  charities,  schools  and  savings-bank  deposits  are 
not  taxed  at  all,  or  taxed  exceptionally,  and  then  only  in 
small  amount.  Liquor  pays  a  tax  designed  to  produce  not 
only  revenue  but  restraint. 

It  needs  but  a  statement  of  these  primary  principles  and 
but  a  superficial  consideration  of  the  purpose  of  life  insur- 
ance, issued  for  the  most  part  in  small  policies,  to  under- 
stand the  iniquity  of  taxing  life  insurance  in  excess  of  the 
cost  of  efficient  State  supervision. 

Twenty-five  million  American  men,  women  and  children, 
for  the  most  part  poor,  and  whose  insurance  averages  for 
the  whole  less  than  $600  a  policy,  not  only  pay  the  cost  of 
their  own  insurance  and  of  State  supervision  and  regulation 
that  should  be  much  more  economical  than  it  is,  but  in  addi- 
tion contribute  an  uncontemplated  yearly  profit  to  the  States 
of  over  $8,000,000.  If  the  companies  continue  their  normal 
growth  and  tax  rates  remain  unchanged,  within  the  next  ten 
years  the  provident  policyholders  of  the  United  States  will 
be  called  upon  to  pay  to  government  authorities  more  than 
$100,000,000.  In  other  words,  the  policyholders  of  the  coun- 


Taxing  a  Tax.  163 

try  can  have  their  insurance  within  the  next  ten  years  cost 
them  less  by  $100,000,000  by  achieving  the  removal  of  taxa- 
tion from  life  insurance. 

This  excessive  insurance  taxation  is  without  parallel. 
Liquor  is  more  heavily  taxed,  but  it  is  an  offense  against 
decency  to  parallel  the  life-insurance  business  with  a  traffic 
frankly  taxed  to  restrain  its  ravages  upon  the  individuals 
and  resources  of  the  taxing  communities.  Quite  to  the  con- 
trary, life  insurance,  in  its  self-imposed  taxes  of  premium 
payments,  provides  the  means  for  bringing  up  the  young, 
housing  the  old,  educating  and  nourishing  a  citizenship 
which  must  otherwise  be  provided  for  in  many  instances  by 
charitable  organizations  or  institutions  maintained  at  the 
expense  of  the  State.  Policyholders  of  the  country  there- 
fore do  a  service  to  nonpolicyholders  and  to  the  country  at 
large  in  voluntarily  assuming  obligations  that  reach  into  old 
age  or  beyond  the  grave. 

Truly  a  life-insurance  tax  is  a  tax  on  thrift  —  not  the 
kind  of  thrift  which  may  be  said  to  be  inherently  evidenced 
in  all  forms  of  wealth,  but  the  kind  of  thrift  that  is 
applauded  by  law  in  exempting  savings-bank  deposits  from 
taxation;  the  kind  of  thrift  which  forestalls  poverty,  igno- 
rance, infamy,  crime,  as  savings-bank  deposits  have  never 
done  or  can  never  do. 

"  Because  of  the  beneficent  character  of  insurance,"  says 
Thomas  E.  Drake,  in  official  report  of  the  Department  of 
Insurance  of  the  District  of  Columbia,  of  which  he  is  the 
superintendent,  "  I  consider  it  equally  as  unjust  to  exact 
from  policyholders  anything  above  a  sufficient  sum  to  main- 
tain supervision  as  that  of  imposing  a  tax  on  school,  church 
or  cemetery  property,  which  is  everywhere  exempt  from 
such  extortion." 

Eliminating  for  the  moment  the  claims  of  life  insurance 


164  The  Romance  of  Life  Insurance. 

to  freedom  from  taxation  on  grounds  of  public  policy,  the 
injustice  of  present  taxation  can  be  brought  out  by  com- 
parison with  industries  that  under  no  circumstances  could 
make  claim  for  similar  exemption.  In  a  recent  issue  of 
The  American  Lawyer,  an  article  entitled  "  Burdening  the 
Insured "  supplied  the  following  comparisons,  with  the 
explanation  that  the  figures  were  taken  from  the  books  of 
four  business  houses,  all  located  in  a  certain  city  of  the 
United  States,  and  compared  with  a  life-insurance  company 
paying  taxes  in  the  same  city. 

RETAIL   DRUG   STORE. 

Gross  income  for  the  year $  64,000.00 

Taxes  actually  paid 91.00 

Insurance    tax    of    two    per    cent    on    gross 

income    1,280.00 

RETAIL  GROCERY. 

Gross  income  for  the  year $  61,864.61 

Taxes   actually  paid 70.00 

Insurance    tax    of    two    per    cent    on    gross 

income    1,237.29 

RETAIL  DRY- GOODS   STORE. 

Gross  income  for  the  year $342,000.00 

Taxes  actually  paid 639.87 

Insurance    tax    of    two    per    cent    on    gross 

income    6,840.00 

WHOLESALE   IMPLEMENT   HOUSE. 

Gross  income  for  the  year $464,000.00 

Taxes  actually  paid 283.50 

Insurance    tax    of    two    per    cent    on    gross 

income   9,280.00 

The  comparisons  made  in  this  illustration  are,  of  course, 
not  generally  applicable,  but  are  illuminating  so  far  as  they 
go.  In  the  city  under  comparison,  life-insurance  taxes  are 
two  per  cent  of  the  gross  premium,  which  is  an  average  life- 
insurance  tax,  although  the  tax  varies  in  the  different  com- 


Taxing  a  Tax.  165 

munities,  producing  the  grossest  form  of  discrimination  as 
between  policyholders  of  the  different  States. 

There  are  some  difficulties  in  clearly  comparing  tax  rates, 
because  taxation  in  different  communities  is  predicated  on 
systems  that  more  or  less  differ.  For  example,  Massachu- 
setts does  not  tax  at  all  on  gross  premiums,  but  bases  the 
tax  on  "  net  policy  reserves,"  taxing  reserves  on  Massa- 
chusetts policies  one-quarter  on  one  per  cent  alike  on 
Massachusetts  home  companies  and  companies  of  other 
States  operating  in  Massachusetts.  Connecticut  taxes  one- 
quarter  of  one  per  cent  on  home  assets  of  Connecticut  com- 
panies, and  for  companies  of  outside  States  it  taxes  their 
Connecticut  premiums  the  same  rate  that  Connecticut  com- 
panies are  taxed  in  the  home  State  of  the  foreign  company. 
This  is  known  as  reciprocal  tax,  and  is  a  vicious  legislative 
element  that  is  more  properly  described  as  a  retaliatory  tax. 

Reciprocal  taxation  means  for  example,  that  a  New  York 
company  is  taxed  in  Connecticut  one  per  cent  of  jts  Con- 
necticut premiums,  because  this  is  the  rate  required  ;'of  Con- 
necticut companies  in  New  York  State,  while  an  Indiana 
company  operating  in  Connecticut  would  be  taxed  three  per 
cent  on  gross  premium  receipts,  less  losses  paid  in  the  State, 
and  a  company  domiciled  in  Tennessee  would  be  taxed  two 
and  one-half  on  its  gross  premiums,  because  Connecticut 
companies  would  be  respectively  taxed  three  per  cent  and 
two  and  one-half  per  cent  in  Indiana  and  Tennessee.  The 
final  absurdity  of  the  situation  is  achieved  in  reciprocal 
immunity  for  companies  domiciled  in  States  like  Wiscon- 
sin, where  no  gross  premium  tax  is  demanded  at  all  of 
outside  companies.  A  Wisconsin  company  consequently 
entirely  escapes  taxation  above  a  nominal  license  fee,  in 
States  like  Connecticut  in  which  outside  companies  are  only 

taxed  under  reciprocal  or  retaliatory  laws. 
10 


166  The  Romance  of  Life  Insurance. 

Wisconsin  overcomes  the  advantage  its  home  companies 
occupy  in  certain  other  States  under  retaliatory  legislation, 
by  taxing  its  own  companies  under  the  income-tax  law  of 
the  State  three  per  cent  of  the  Wisconsin  gross  income, 
which  means  not  only  a  premium  tax,  but  in  addition  a  tax 
upon  the  earning  power  of  the  assets  in  Wisconsin.  The 
Northwestern  Mutual,  located  in  this  State,  pays  taxes  in 
excess  of  $1,000  per  day  to  Wisconsin.  The  president  of 
this  company  this  year  sent  a  letter  to  each  of  the  policy- 
holders  of  the  State  to  acquaint  them  with  the  situation,  in 
which  he  stated: 

This  company  has  since  the  year  1898  been  compelled  to  pay 
grossly  excessive  taxes  to  the  State  of  Wisconsin.  It  paid  in  taxes 
and  license  fees  for  the  year  1907  the  immense  sum  of  $367,726.01, 
more  than  $1,000  per  day.  It  paid  into  the  Wisconsin  State  Treas- 
ury in  the  year  ending  June  30,  1906,  a  sum  greater  than  was  paid 
by  all  other  life-insurance  companies,  all  fire-insurance  companies, 
all  accident  and  casualty  companies,  all  loan  and  trust,  plank  road, 
boom  and  river  improvement,  express,  sleeping-car,  freight  line  and 
equipment  companies  doing  business  in  this  State.  It  has  paid 
nearly  $3,000,000  in  taxes  to  the  State  during  the  last  ten  years. 
The  annual  tax  on  this  company  in  Wisconsin,  if  deducted  from  the 
dividends  paid  to  policyholders  in  Wisconsin,  would  amount  to 
more  than  fourteen  per  cent  of  their  premiums,  making  a  rate  seven 
times  as  large  as  the  average  premium-tax  rate  imposed  by  the  laws 
of  other  States. 

While  there  are  differences  in  the  method  of  exacting 
life-insurance  taxes,  the  general  practice  is  to  exact  a  tax  on 
the  gross  premiums  collected.  For  purposes  of  comparison, 
all  taxes  can  be  thrown  to  this  basis  by  summing  up  the  total 
taxes  paid  in  dollars  and  cents  and  finding  what  proportion 
these  taxes  bear  to  the  gross  premium.  An  exhibit  of  this 
kind  has  been  prepared  by  the  Northwestern  Mutual,  which 
is  the  largest  American  company  operating  solely  in  the 
United  States.  During  the  year  1907  this  company  received 


Taxing  a  Tax.  167 

$28,869,595.24  in  gross  premiums,  and  paid  taxes  amount- 
ing to  $759,151.48  —  2.63  per  cent  of  the  total  premium.  As 
a  whole  this  company  averaged  not  greatly  different  from 
other  American  companies  in  the  United  States,  but  the  dis- 
tribution brought  about  by  its  peculiar  laws  was  such  as  to 
make  the  taxes  to  the  home  State  excessive  beyond  possible 
justification,  and  to  reduce  offsettingly  the  taxes  paid  to  the 
other  States  in  the  Union.  In  Connecticut,  Illinois  and  New 
Jersey,  Northwestern  Mutual  gross  premiums,  aggregating 
nearly  four  millions,  escaped  taxation  entirely,  while  in  all 
other  States  fixing  a  minimum  rate  of  taxation  and  pro- 
viding for  retaliatory  increases,  the  Northwestern  Mutual, 
of  course,  came  in  under  the  minimum  rate.  Excluding 
Connecticut,  Illinois  and  New  Jersey,  and  stating  the  rates 
in  order  of  low  percentage  on  basis  of  gross  premium  tax, 
the  following  variety  is  produced : 

California,  Georgia,  New  Hampshire,  New  York,  Vir- 
ginia, i  per  cent;  Idaho,  1.14  per  cent;  Oregon,  1.21  per 
cent;  District  of  Columbia,  1.25  per  cent;  Vermont,  1.45 
per  cent;  Maine,  Maryland,  Utah,  1.5  per  cent;  Massachu- 
setts, 1.64  per  cent;  Indiana,  1.96  per  cent;  Washington, 
1.91  per  cent;  Alabama,  Arizona,  Colorado,  Delaware, 
Florida,  Kansas,  Kentucky,  Michigan,  Minnesota,  Missouri, 
Nebraska,  New  Mexico,  Oklahoma,  Pennsylvania,  Rhode 
Island,  West  Virginia,  2  per  cent ;  Montana,  2.01  per  cent ; 
Texas,  2.25  per  cent ;  Iowa,  North  Carolina,  North  Dakota, 
Ohio,  South  Dakota,  Tennessee,  Wyoming,  2.5  per  cent. 

The  figures  of  this  table  eloquently  supply  argument  for 
taxation  reform,  both  in  the  excessive  manner  in  which  life 
insurance  is  taxed,  and  in  the  lack  of  uniformity  in  placing 
the  tax.  Through  this  lack  of  uniformity,  States  are  filch- 
ing not  only  from  the  policyholders  of  their  own  States,  in 
penalizing  tax  upon  provident  thrift,  but  are  reaching 


168  The  Romance  of  Life  Insurance. 

beyond  and  exacting  tribute  from  citizens  of  other  States. 
Wisconsin,  for  example,  takes  $365,000  of  the  total  $759,000 
paid  in  taxes  by  the  Northwestern  Mutual.  Policyholders  of 
this  company  in  other  States,  representing  fourteen  times  the 
amount  of  gross  annual  premium  actually  collected  from 
Wisconsin  policyholders,  pay  nearly  one-half  of  their  total 
taxation  burden  to  Wisconsin.  Yet,  as  previously  stated, 
through  the  operation  of  reciprocal  immunity  in  other 
States,  the  taxation  cost  to  the  membership  of  this  company 
is  not  greatly  different  from  that  of  any  other  large  com- 
pany, although  it  is  less  equitably  distributed  among  the  con- 
tributing States. 

Ralph  W.  Breckenridge,  in  an  address  delivered  offi- 
cially before  the  subcommittee  on  taxation  appointed  by  the 
National  Convention  of  State  Insurance  Commissioners, 
referred  to  the  inequalities  and  excessiveness  of  life- 
insurance  taxation,  as  follows: 

No  other  business  is  required  to  contribute  thus  unfairly  to  the 
revenue  of  the  State,  and  as  all  taxes  and  losses  are  paid  out  of 
premiums,  the  policyholders  bear  this  burden.  As  already  stated, 
the  cause  of  this  inequity  must  be  charged  to  the  ignorance  of  the 
people  and  their  representatives  in  the  State  legislatures  of  the 
principles  which  underlie  the  business  of  insurance;  but  this  very 
discussion  is  a  part  of  the  campaign  of  education  which  will  not  end 
until  an  informed  and  enlightened  public  insists  on  taxing  insurance 
companies  fairly  and  justly.  ...  It  was  Charles  Sumner  who 
first  said  that  "  a  tax  upon  insurance  is  a  tax  upon  a  tax,  and,  there- 
fore, a  barbarism."  And  the  uses  made  of  insurance  and  the 
consequent  necessity  for  it  have  increased  many  fold  since  that 
statement  was  made. 

Mr.  Breckenridge  refers  to  Charles  Sumner,  who  was  a 
member  from  Massachusetts  of  the  Thirty-seventh  Congress 
in  session  when  the  United  States  was  going  through  the 
throes  of  the  Civil  War.  Sinews  of  war  were  needed,  and  a 


Taxing  a  Tax.  169 

bill  was  introduced  for  the  government  to  tax  life  insurance. 
Charles  Sumner  then  uttered  the  words  which  helped  defeat 
the  bill  and  which  are  as  true  to-day  as  they  were  in  those 
times  of  strife : 

The  business  of  insurance,  as  it  seems  to  me,  is  peculiar.  It 
differs  from  other  businesses.  It  is  not  strictly,  if  I  may  say  so,  a 
money-making  business,  but  a  money-saving  business.  The  primary 
object  of  the  insurance  office  is  to  protect  other  people  and  particu- 
larly the  poor.  On  this  account,  it  seems  to  me,  that  it  is  entitled 
to  a  certain  consideration.  Now,  what  is  proposed?  A  tax  on  the 
premiums.  What  are  the  premiums  ?  The  premiums  are  themselves 
a  tax.  The  premiums  consist  of  the  tax  which  the  person  insured 
pays  for  his  insurance,  and  now  it  is  proposed  to  put  a  tax  on  a  tax. 
This  is  the  precise  case.  I  state  it  in  this  way  to  simplify  it;  in 
order  to  reduce  it,  as  I  may  say,  to  its  most  naked  form. 

This  is  exactly  the  view  taken  of  life  insurance  in  Eng- 
land. Our  British  cousins  operate  under  a  system  of  income 
tax.  Not  only  does  England  refrain  from  taxing  life  insur- 
ance, but  on  the  contrary  exempts  from  taxation  a  portion  of 
a  man's  income  up  to  eight  per  cent  if  used  in  the  payment 
of  life-insurance  premiums.  Germany,  with  its  burden  of 
militarism,  has  never  in  its  need  for  revenue  taxed  life- 
insurance  premiums.  To  the  contrary,  the  government  has 
shown  a  far-sighted  appreciation  of  the  benefit  to  the  State 
from  properly-conducted  insurance,  and  has  itself  made  cer- 
tain forms  of  insurance  compulsory. 

About  this  time  in  the  recital  of  taxation  ravages  in  life 
insurance,  the  question  is  interposed :  "  Why,  then,  is  life 
insurance  in  America  so  outrageously  taxed  in  this  unprec- 
edented and  ununiform  manner,  and  why  has  this  outrage 
upon  the  policyholders  been  allowed  to  go  on  unknown  arid 
unappreciated  by  them  ?  " 

Both  questions  can  be  answered  at  once.  "  Life- 
insurance  premiums  officially  accounted  for  in  annual  state- 


1 70  The  Romance  of  Life  Insurance. 

ments  to  the  different  insurance  departments  present  an 
unusually  simple  subject  for  taxation.  Exact  statements  of 
premiums  collected  in  the  different  taxing  jurisdictions  are 
readily  available.  Availability  has  been  the  taxation 
undoing  of  life  insurance.  A  tax  levied  upon  these  pre- 
miums and  exacted  from  the  life-insurance  company  becomes 
only  indirectly  a  tax  upon  the  policyholder,  and  the  form 
and  appearance  of  indirect  taxation  is  ever  pleasing  to  the 
State  legislator  desirous  of  '  plucking  the  goose  to  obtain  the 
greatest  amount  of  feathers  with  the  least  squawking/ ' 

Ordinarily  State  taxes  are  direct  taxes  exacted  from  the 
citizens  of  the  State  upon  values  definitely  established  as 
being  individually  owned  and  subject  to  tax.  Federal  taxa- 
tion has  taken  on  the  indirect  form  in  tariffs  and  internal 
revenue,  which  directly  affect  the  price  of  the  commodity. 
Every  cigar  smoked,  every  glass  of  whisky  consumed,  as 
well  as  every  dutiable  imported  article,  call  in  direct  increase 
in  price  for  indirect  revenue  to  the  federal  government. 
When  the  State  puts  its  indirect  tax  upon  the  life-insurance 
premiums,  it  similarly  exacts  a  toll  from  every  toiler  bur- 
dening himself  with  life-insurance  obligations  —  a  toll  that 
adds  appreciably  to  the  burden.  The  difference  between  the 
State's  indirect  taxation  and  the  federal  government's  indi- 
rect taxation  is  that  the  latter  is  levied  and  graded  to  reach 
luxuries  or  place  restraint. 

Life  insurance's  indirect  tax  reaches  the  money  of  the 
widow  and  the  orphan,  exempted  by  law  as  inviolable  from 
liability  for  the  deceased's  debts  or  his  obligations  to  credi- 
tors. It  is  the  money  that  grades  from  the  small  industrial 
claim,  which  pays  for  the  lowly  grave,  that  spares  to  the 
State  a  place  in  its  Potters'  Field,  and  to  the  deceased  and 
the  relatives  the  pangs  of  ignominy  which  pauper  burial 
means.  On  up  the  scale  life  insurance  means  most  often 


Taxing  a  Tax.  171 

educating  the  orphan,  sustaining  the  widow,  in  varying 
gradations  of  living,  usually,  however,  below  the  standard 
formerly  provided. 

Through  publicity  policyholders  can  accomplish  legis- 
lative reforms  and  prevent  legislative  tax  reprisals  as  no 
system  of  lobby  has  ever  done.  After  all,  the  tax  problem 
is  the  problem  of  the  policyholder,  and  the  duty  of  the 
administrative  officer  in  life  insurance  ends  with  a  clear 
pointing  out  to  the  policyholder  and  the  public  benefited 
by  the  policyholder's  thrift,  the  enormity  of  a  situation 
imposing  this  crushing  life-insurance  tax. 

There  are  other  reasons  for  the  life-insurance  tax  than 
the  availability  of  life-insurance  moneys  for  taxing  pur- 
poses and  the  possibility  of  obtaining  State  revenue  in  this 
way  without  at  once  arousing  the  victims  of  the  tax.  Some 
few  thoughtful  men  —  a  negligible  few  among  those  who 
have  studied  the  subject  —  contend  for  a  continuance  of  life- 
insurance  taxation  because  of  the  accumulations  of  asset 
wealth  held  by  the  different  companies,  and  in  support  of  a 
belief  that  taxation  should  be  equalized  to  bear  upon  all 
wealth.  This  contention  is  largely  based  upon  misunder- 
standing of  the  nature  of  life  insurance  and  of  the  fact 
that  the  assets  of  life  insurance  but  offset  liabilities  for 
"  reserves,"  necessary  under  level-premium  life  insurance  to 
keep  the  rates  from  increasing  with  increases  in  age,  and 
otherwise  to  mature  at  face  value  the  obligations  of  the 
company. 

Of  course  there  is  in  life  insurance  a  sprinkling  of  a  rich 
patronage,  just  as  there  is  in  savings  banks,  but  even  among 
this  patronage  the  insurance  policy  stands  itself  as  a  tax. 

Life-insurance  funds  are  taxed  in  so  far  as  they  are 
invested.  Real  estate  owned  by  life  insurance  pays  the  same 
tax  as  real  estate  owned  elsewhere.  If  the  whole  assets  of 


1 72  The  Romance  of  Life  Insurance. 

a  life-insurance  company  were  in  real  estate  or  other  phys- 
ical forms  of  wealth,  the  entire  wealth  would  be  taxed  under 
general  property-tax  laws  in  the  communities  where  the 
property  was  located,  in  addition  to  the  indefensible  pre- 
mium tax.  However,  all  life-insurance  funds  are  not  in 
physical  wealth,  as  it  is  desirable  they  should  not  be.  Much 
of  the  money  is  constituted  in  rights,  such  as  mortgages, 
bonds  and  stocks.  While  these  rights  are  not  directly  taxed, 
they  none  the  less  in  turn  represent  physical  property  in 
railroads,  plants,  utilities,  land;  all  of  which  is  taxable  as 
physical  wealth,  with  indirect  effect  upon  the  value  of  the 
shares  or  mortgages. 

Of  course  it  can  be  maintained,  for  what  the  argument  is 
worth,  that  life  insurance  escapes  a  certain  portion  of  the 
tax  of  its  physical  assets,  since  under  our  general  property- 
tax  system  both  the  physical  property  is  taxed  and  the  evi- 
dences or  rights  to  this  property,  as  represented  in  bonds, 
stocks,  and  the  rights  and  mortgages,  are  also  taxed. 

No  life-insurance  official  of  importance  has  ever  objected 
to  or  contended  against  life  insurance  being  taxed  upon  its 
real  estate  or  other  physical  property,  and  being  taxed  in 
license  and  fees  or  otherwise,  the  necessary  sums  to  sup- 
port efficient  governmental  supervision  of  the  business. 
Beyond  this,  however,  it  appears  that  a  tax  upon  gross  pre- 
miums can  not  be  justified  in  the  laws  and  practices  of  this 
land,  in  the  precedents  established  by  other  enlightened 
countries,  or  in  ethical  considerations  of  public  policy.  Since 
this  gross  premium  tax  can  not  be  legally  levied  under  the 
taxing  powers  of  the  State,  it  is  usually  imposed  under  the 
police  power,  in  the  form  of  a  privilege  tax,  or  a  franchise 
tax,  for  the  privilege  of  transacting  business  in  the  different 
taxing  communities. 

Life  insurance  has  no  interstate  privileges  save  what  the 


Taxing  a  Tax.  173 

different  sovereign  States  bestow  upon  it,  and  it  is  therefore 
within  the  police  power  of  the  several  States  to  lay  down 
stipulations  in  taxation  and  fee  requirements,  as  precedent 
to  doing  business  in  that  State. 

"  A  State  has  the  power,"  said  Ralph  W.  Breckenridge, 
chairman  of  the  insurance  committee  of  the  American  Bar 
Association,  "  to  make  the  gross  annual  premium  of  any 
company  the  basis  of  exactions  in  the  nature  of  license  fees ; 
but  such  an  exaction  penalizes  the  policyholders  and  puts  an 
added  burden  upon  thrift,  economy  and  foresight  in  order 
that  the  taxes  of  those  who  have  neither  thrift,  economy  nor 
foresight  may  be  reduced.  Why  penalize  insurance?  It  is 
not  an  outlaw." 

Mr.  Breckenridge  made  this  statement,  as  he  made  the 
other  statements  previously  credited  to  a  subcommittee  of 
State  insurance  commissioners  considering  the  question  of 
life-insurance  taxation.  Later  this  subcommittee  reported 
to  the  1908  National  Convention  of  State  Insurance  Com- 
missioners with  recommendations : 

First.  That  the  rate  of  the  premium-income  tax,  if  one  be 
imposed,  shall  be  fixed  by  methods  which  shall  give  some  assurance 
of  equality  of  rate  with  that  of  other  taxpayers.  For,  whoever 
may  object  to  the  entire  repeal  of  such  laws  certainly  will  not  object 
to  so  framing  them  that  the  taxes  exacted  from  life-insurance  cor- 
porations will  not  exceed  those  exacted  from  other  taxpayers.  .  . 

Second.  All  laws  authorizing  taxation  of  premium  income  in 
counties  and  municipalities  as  an  item  of  property  should  be 
repealed. 

Third.  All  laws  and  ordinances  authorizing  occupation  or  license 
taxes  in  counties,  cities,  towns  and  villages  should  be  repealed. 

Fourth.  Laws  of  the  States  imposing  fees  and  licenses  should 
be  revised  and  graduated  upon  an  equitable  basis,  so  as  to  raise 
therefrom  adequate  funds  for  the  maintenance  of  the  insurance 
department  within  the  State.  The  fees  and  licenses  so  charged 
should  be  enough,  but  not  more  than  enough,  to  pay  the  expenses 


174  The  Romance  of  Life  Insurance. 

of  maintaining  the  insurance  department.    They  should  be  so  regu- 
lated as  to  accomplish  this  end,  but  no  more. 
The  report  then  continues : 

The  adoption  by  all  the  States  of  these  remedies  would  cure  a 
great  evil,  and  relieve  the  several  States  of  the  charge  fairly  made 
against  them,  namely,  that  by  this  system  of  taxation  they  increase 
the  cost  of  insurance  or  reduce  the  amount  thereof,  with  little  more 
reason  or  little  more  justification  than  the  misappropriation  of  such 
funds  for  political  campaign  purposes,  or  the  use  of  them  in  extrava- 
gance of  management. 

As  evidence  of  the  unanimity  of  opinion  on  the  subject 
from  men  of  the  understanding  and  unbiased  type  of  the 
State  officials  supervising  the  business,  the  report  of  this 
committee  was  adopted  by  a  vote  of  the  different  States, 
with  only  four  negative  votes  registered  against  the  report. 
These  votes  were  from  Texas,  South  Dakota,  South  Caro- 
lina and  Wisconsin.  The  representative  from  Wisconsin 
afterward  informally  explained  that  his  vote  was  registered 
against  the  adoption  of  the  report  because  of  the  method 
of  taxation  rather  than  because  of  the  intended  reduction  in 
taxation,  as  the  Wisconsin  representative  believed  that  such 
taxation  as  is  exacted  should  be  placed  upon  the  reserve 
values.  Massachusetts  places  its  tax  in  this  manner  at  this 
time.  The  result  of  so  predicating  the  tax  is  greatly  to 
involve  the  system,  and  if  the  same  total  amount  of  taxa- 
tion were  exacted  from  the  different  companies  and  thus 
eventually  from  their  policyholders,  it  would  merely  mean 
that  the  distribution  among  the  companies  would  bear  more 
heavily  upon  policyholders  constituting  the  older  companies 
with  the  larger  reserve  accumulations,  and  be  consequently 
lighter  where  the  business  averaged  shorter  time  in  force, 
or  with  companies  with  lower  reserves. 

In  the  exhibit  of  the  Northwestern  Mutual,  to  which 
previous  reference  has  been  made,  the  Massachusetts  tax  of 


Taxing  a  Tax.  175 

one-quarter  of  one  per  cent  of  the  net  policy  valuation 
amounted  to  practically  the  same  per  cent  of  the  gross 
premium,  when  put  on  the  basis  of  a  gross  premium  tax,  as 
the  average  gross  premium  tax  exacted  by  other  States 
taxing  the  company  direct  upon  gross  premiums. 

In  December,  1908,  at  the  invitation  of  the  Association  of 
Life  Insurance  Presidents,  there  convened  in  New  York  a 
conference  of  insurance  executives  and  State  officials  super- 
vising insurance,  to  consider  the  matter  of  life-insurance 
taxation  reform.  One  speaker,  the  president  of  the  Pruden- 
tial Insurance  Company,  crystallized  the  conclusions  that 
life  insurance  was  taxed  excessively  and  unfairly  into  a  call 
for  action  to  strive  in  coming  legislatures  for  a  reduction 
of  the  gross  premium  tax  rate  to  one  per  cent  as  a  uniform 
tax  requirement  in  the  different  States.  This,  it  will  be 
remembered,  is  the  rate  now  required  by  New  York  and 
certain  others  of  the  leading  States.  A  uniform  one  per 
cent  gross  premium  tax  would  cut  the  burden  in  about  half 
to  the  policyholder,  and  would  make  more  than  reasonable 
concession  to  the  element  who  think  life  insurance  should 
be  taxed.  Moreover  it  would  remove  the  inequities  of  non- 
uniform  tax  rates  ranging  from  one  per  cent  to  three  per 
cent  in  the  different  taxing  communities. 

Remembering  that  for  a  generation  life  insurance  has 
contended  for  uniformity  of  taxation  among  the  different 
States  at  a  minimum  tax  rate,  during  which  time  taxation 
has  increased,  becoming  more  non-uniform,  the  situation 
would  be  discouraging  were  it  not  for  the  fact  that  the 
power  of  publicity  is  being  utilized  to  arouse  the  voice  of  the 
people  in  tones  that  must  be  heard  and  heeded.  The  diffi- 
culties of  the  situation  are  presented  in  the  apathy  of  the 
policyholder  and  in  the  reluctance  of  States  voluntarily  to 
reduce  revenue  indirectly  exacted  from  the  policyholder, 


176  The  Romance  of  Life  Insurance. 

which  reduction  would  not  be  any  larger  to  the  policyholders 
of  the  domestic  State  than  would  be  the  case  to  the  policy- 
holders  in  all  other  States. 

For  this  reason  the  writer  has  had  a  growing  conviction 
that  life-insurance  taxation  should  be  directly  assessed 
against  the  policyholder,  in  accordance  with  the  rate  in  the 
taxing  community  in  which  the  policyholder  lives.  If  this 
is  not  done  by  the  State,  as  the  State  levies  all  other  taxation 
directly  to  its  citizens,  it  might  be  done  by  the  companies. 
This  could  be  accomplished  with  the  mutual  companies  in 
apportionment  of  dividends,  which  take  into  account  the 
varying  taxing  rates,  and  would  accordingly  determine  the 
size  of  the  dividend  with  reference  to  the  tax  rate.  This 
plan  has  been  attempted  in  slipshod  fashion  by  one  or  two 
individual  companies,  in  communities  where  the  tax  was 
particularly  excessive,  but  discontinued  because  no  half- 
hearted individual  methods  of  this  kind  could,  in  the  nature 
of  affairs,  be  made  successful. 

A  better  method  of  directly  apportioning  the  cost  of  tax 
to  the  different  taxing  communities,  which  would  embrace 
both  the  dividend  companies  and  the  nonparticipating  com- 
panies, would  be  to  make  the  tax  a  direct  addition  to  the 
premium.  This  could  be  done  by  quoting  a  premium  minus 
taxation,  to  be  used  uniformly  through  the  United  States. 
Insurance  would  thus  be  supplied  at  exactly  the  same  cost 
in  every  place  in  the  country,  and  the  burden  of  this  cost  as 
increased  by  greedy  State  demands  would  rest  entirely  upon 
the  policyholders  of  the  State  obtaining  the  revenue,  and 
would  be  directly  apportioned  to  the  State's  avarice.  Not 
the  least  of  the  benefits  of  such  a  system  would  be  the  abso- 
lute defeat  of  vicious  retaliatory  tax  measures  by  doing 
away  with  the  vicious  discrimination  between  States  that 
gave  them  being. 


Taxing  a  Tax.  177 

A  company  adopting  a  plan  of  direct  taxation  could  at 
once  reduce  its  premium  by  two  per  cent  or  better  on  all 
policies.  This  would  mean  reduced  insurance  cost  to  the 
States  taxing  less  than  the  average,  and  increased  insurance 
cost  in  States  taxing  more  than  the  average. 

The  company  quoting  rates  minus  taxation,  and  collect- 
ing at  the  same  time  the  tax  required,  would  furnish  cheaper 
insurance  in  the  taxing  jurisdictions  where  the  tax  rate  is 
under  the  average,  and  thus  have  an  advantage  in  competi- 
tion, an  advantage  which  would  be  offset  by  having  to  exact 
larger  cost  than  the  competing  companies  in  taxing  juris- 
dictions above  the  average  in  rate.  So  far  as  this  is  an 
objection,  it  could  be  overcome  by  a  concerted  action  among 
the  companies,  which  concert  could  well  force  a  sizable 
opposing  minority  to  adopt  the  same  system. 

A  life-insurance  company  receives  for  the  insurance 
benefit  it  furnishes  to  the  policyholder,  the  premium  the 
policyholder  pays,  minus  the  taxes  required.  Excluding 
real-estate  taxes  and  taxes  on  physical  wealth,  all  taxes 
against  life  insurance  can  be  reduced  to  a  tax  upon  the  gross 
premium,  leaving  the  insurance  company  or  association,  as  a 
price  for  its  insurance,  the  difference  between  the  gross 
premium  charged  and  the  premium  tax.  Consider,  for 
example,  three  policyholders  of  exactly  the  same  age,  each 
paying  a  premium  of  $100  to  the  Northwestern  Mutual,  a 
Wisconsin  company,  on  exactly  the  same  form  of  insurance, 
taken  out  at  exactly  the  same  time ;  one  being  a  resident  of 
New  York  State,  another  of  Pennsylvania  and  the  third  of 
Iowa.  The  Northwestern  Mutual  pays  a  one  per  cent  pre- 
mium tax  in  New  York ;  as  a  result  it  nets  $99  as  a  premium 
from  the  policyholder  of  New  York ;  from  the  policyholder 
in  Pennsylvania,  where  there  is  a  premium  tax  of  two  per 
cent,  it  nets  $98,  and  from  the  policyholder  in  Iowa  it  nets 


178  .The  Romance  of  Life  Insurance. 

$97-5°»  because  in  Iowa  there  is  a  two  and  one-half  per  cent 
premium  tax.  In  other  words,  the  company  furnishes  the 
same  insurance  to  all  these  policyholders,  from  whom  it 
receives  as  a  net  premium  a  sum  that  discriminates  in  cost, 
just  as  the  tax  rates  of  the  States  discriminate  in  tax.  It 
appears  with  the  mere  statement  that  if  a  State  wishes  to 
exact  heavy  taxes,  it  should  exact  it  from  its  own  peoples, 
and  that  if  a  State  wishes  to  lighten  the  burden  of  taxation 
to  policyholders,  this  burden  should  be  directly  lifted  from 
the  policyholders  of  its  State  in  appreciable  reduction  of 
insurance  cost  and  not  in  the  imperceptible  reduction  that 
comes  from  a  thin  spreading  around  throughout  the  com- 
pany's entire  field  of  operation,  no  more  to  the  policyholders 
of  the  reducing  State  than  to  the  policyholders  constituting 
the  citizenship  of  the  most  extortionate  State. 

While  State  laws  everywhere  prohibit  discrimination 
between  policyholders  of  the  same  conditions  and  expecta- 
tion of  life,  it  does  not  follow  from  this  adjunct  that  a  com- 
pany must  discriminate  in  its  cost  of  insurance,  in  order  to 
equalize  the  State's  own  discrimination  as  compared  with 
other  States  in  the  matter  of  obtaining  taxing  revenue. 

Against  this  plan  it  has  been  urged  that  a  legislature 
might  prohibit,  under  its  police  power,  the  licensing  of  a 
company  that  would  directly  apportion  taxes  to  the  policy- 
holder,  which  means,  of  course,  legislatures  in  those  States 
where  the  taxing  rate  is  above  the  average.  It  is  scarcely  to 
be  expected  that  the  legislators  in  a  State  taxing  at  a  mini- 
mum tax  rate  would  object  to  the  policyholders  of  their 
State  obtaining,  through  a  system  of  direct  apportionment 
of  taxes,  reduced  insurance  cost  over  that  produced  by  the 
present  system.  Therefore,  the  legislature  to  consider 
would  be  the  legislature  of  the  States  in  which  taxation  is 
at  a  maximum,  or  at  least  above  the  average.  Such  State 


Taxing  a  Tax.  179 

would  then  be  in  the  position  of  using  this  police  power  to 
try  to  exact  taxes  from  citizens  of  other  States. 

The  situation  with  the  legislature  would  then  be :  "  Yes, 
we  are  aware  that  a  direct  apportioning  of  taxes  preserves 
uniformity  of  cost  to  the  policyholder,  insomuch  as  he  is 
furnished  insurance  at  the  same  cost  from  every  taxing 
jurisdiction,  and  that  the  variation  in  price  that  supplies 
cheaper  insurance  in  other  States  is  not  brought  about  by 
any  variation  in  actual  insurance  cost  as  between  citizens  of 
the  different  States,  but  is  brought  about  solely  because  our 
State  has  decided  to  exact  a  heavier  tax  upon  the  policy- 
holders  than  other  States.  We  therefore  object  to  your 
method,  not  because  of  its  equity,  but  because  the  policy- 
holders  of  these  other  States,  taxing  at  a  minimum  amount, 
do  not  help  contribute  to  the  taxes  that  we  would  require 
from  policyholders  of  this  State,  in  addition  to  paying  in 
full  the  taxes  required  by  their  own  States." 

Certainly  no  body  of  American  legislators  would  enact  a 
conclusion  of  this  kind  into  State  law. 

Numerous  objections  to  the  plan,  and  counter-advantages 
too  tedious  to  relate,  suggest  themselves  upon  reflection,  as 
does  the  possible  propriety  of  excluding  from  this  treatment 
industrial  life  insurance,  where  the  premiums  are  paid  in 
weekly  instalments,  in  the  same  way  that  industrial  life 
insurance,  because  of  its  complicated  character,  is  exempted 
from  the  application  of  many  of  the  life-insurance  laws. 

The  conclusion  of  a  review  of  the  taxation  situation 
brings  out : 

First,  that  life  insurance  is  excessively  and  uniustly 
taxed. 

Secondly,  that  the  tax  is  not  uniformly,  evenly  or  fairly 
distributed. 

These  two  considerations  commend  to  all  fair-minded 


180  The  Romance  of  Life  Insurance. 

people,  both  for  its  moderation  in  demand  and  for  its  fair- 
ness between  the  different  States,  the  recommendation  that 
life  insurance  be  uniformly  taxed  at  a  rate  of  one  per  cent 
of  the  gross  premium  in  all  taxing  jurisdictions. 

Self-interestedness  of  legislators  reluctant  to  replace 
revenue  raised  from  life  insurance  by  a  tax  distributed 
directly  where  tax  can  better  be  borne,  and  the  general 
taxation  needs  of  the  State,  must  all  be  taken  into  account  in 
summing  up  probabilities  for  attaining  uniform  legislation 
at  a  maximum  tax  rate  of  one  per  cent. 

The  proposition  of  a  direct  apportionment  of  taxes  is 
offered  finally  in  this  review  as  a  possible,  and  possibly  a 
necessary,  way  to  drive  home  the  fact  that  the  indirect  tax 
upon  life  insurance  is  not  only  removed  from  the  abstrac- 
tions of  a  tax  against  a  corporation,  to  the  concrete  position 
of  being  a  tax  against  the  policyholders,  but  may  thus  be 
further  segregated  to  be  a  tax  upon  that  portion  of  the 
policyholders  constituting  the  citizenship  of  the  taxing 
State. 


WALL  STREET,  NEW  YORK. 


THE  STEWARDSHIP  O 


K  BILLIONS. 


thei i  liui     "**^ 
values,  just  as  t 

e  remarked  of  tl 


WHEN  figii  nd^ert 

is  common  1 
failure  to  distinguish  r 
negro  imported  to  a  n 
perature : 

"  It  ain't  n 
can't  get  no  colder 

Life-insurar  up  to  three  billions  in 

—  an  alm<  :rf^Vl4&H:rjlF337it&  iKftCW^go*  life  insur- 

ance  had  only  onejj^  ^m^tJ  *'&&«?&  its  assets  of  a 
billion  and  a  half  v  ty  difficult  to  appreciate. 

Within  the  next  tci,  insurance  in  all  probability 

will  again  have  doubled  its  asset  wealth,  and  have  und- 
trust  six  thousand  millions,  which  is  another  way  to  describe 
six  billions  of  dolku 

"  Money  is  power,"  runs  the  truism,  and  li  ance 

moneys  as  compart  and  bil- 

avenues  of  commerc  ;dustries 

f  concentrated  power.     A  billion 
or  in  a  combination  of  railroad 
stocks,  rights  and  other  fo 
vert  nsurano 

power  \ 

able 

five  million  policyh- 

183 


\  steel  ti 

iltiplied 

i  conceiv- 
the twenty- 
the  average 


WALL  STREET,  NEW  YORK, 

America's  Investment  Mart. 


REE' 


CHAPTER    XL 
THE  STEWARDSHIP  OF  THREE  BILLIONS. 

WHEN  figures  get  beyond  certain  huge  proportions,  it 
is  common  to  disregard  their  true  importance  through 
failure  to  distinguish  relative  values,  just  as  the  southern 
negro  imported  to  a  northern  clime  remarked  of  the  tem- 
perature : 

"  It  ain't  no  use  to  keep  count  after  it  draps  to  zero ;  it 
can't  get  no  colder  nohow." 

Life-insurance  assets  total  up  to  three  billions  in  1908 
—  an  almost  inconceivable  sum.  Ten  years  ago,  life  insur- 
ance had  only  one-half  this  wealth,  and  yet  its  assets  of  a 
billion  and  a  half  were  then  equally  difficult  to  appreciate. 
Within  the  next  ten  years,  life  insurance  in  all  probability 
will  again  have  doubled  its  asset  wealth,  and  have  under  its 
trust  six  thousand  millions,  which  is  another  way  to  describe 
six  billions  of  dollars. 

"  Money  is  power,"  runs  the  truism,  and  life-insurance 
moneys  as  compared  with  millions  and  billions  invested  in 
avenues  of  commerce  and  industries  may  be  said  to  repre- 
sent concentrated  power.  A  billion  dollars  in  a  steel  trust, 
or  in  a  combination  of  railroads,  represents  mileage,  plants, 
stocks,  rights  and  other  forms  of  wealth  not  readily  con- 
vertible, while  life-insurance  wealth  possesses  the  multiplied 
power  that  comes  from  a  high  order  of  convertibility. 

Although  life-insurance  figures  run  to  almost  inconceiv- 
able sums  in  the  aggregate,  segregated  among  the  twenty- 
five  million  policyholders  in  the  United  States,  the  average 

11  183 


184  The  Romance  of  Life  Insurance. 

policy  is  seen  to  be  less  than  $600,  and  the  average  amount 
of  assets  held  to  the  credit  of  each  policy  about  $120.  Life 
insurance  is  truly  the  wealth  of  the  poor.  Its  mighty 
accumulations  produce  abstract  problems  of  colossal  wealth, 
but  the  concrete  must  never  be  forgotten  —  the  concrete  of 
the  modest  prudence  of  the  individual  policyholder. 

The  investment  of  these  sums  to  secure  absolute  safety 
and  the  greatest  amount  of  earnings  consistent  with  true 
economy  is  a  vital  question,  affecting  not  only  the  welfare 
of  the  policyholders,  but  the  whole  American  public  as  well. 
Devotedly  designed  for  the  widow  and  for  the  orphan,  it  is 
of  first  public  import  so  to  safeguard  these  funds  that  no 
man  or  group  of  men  may  ever  handle  them  for  self- 
aggrandizement  that  must  jeopardize  the  security  and  sub- 
tract from  the  earning  power. 

No  body  of  men  in  America  more  than  the  men  who 
to-day  constitute  the  management  of  life  insurance  and  its 
active  agency  forces,  welcomed  the  legislation  that  elim- 
inated high  finance  from  life-insurance  investments  by 
investment  laws  as  they  now  are.  To-day  life  insurance 
must  purchase  and  sell  in  direct  individual  transactions, 
unassociated  in  joint  accounts  or  in  syndicates.  Securities 
bought  outside  of  the  syndicates  cost  more,  but  who  will  say 
that  they  are  not  worth  more  to  life  insurance? 

Possibly  many  will  be  surprised  to  learn  that  the  actual 
result  of  the  much-condemned  syndicate  and  joint  accounts 
in  the  Big  Three  life-insurance  companies  operated  to  the 
actual  profit  of  the  policyholder.  This,  despite  the  fact  that 
in  some  of  these  companies  the  syndicate,  or  joint  accounts, 
used  in  the  purchasing  of  securities,  also  operated  —  or  were 
especially  designed  to  operate  —  to  the  benefit  of  individuals 
connected  with  the  companies.  The  number  of  companies 
in  which  these  high-finance  methods  were  in  vogue  were 


The  Stewardship  of  Three  Billions.  185 

relatively  few,  and  the  number  of  the  officials  actually  in 
sympathy  with  such  methods  were  relatively  fewer. 

It  can  truly  be  said  that  life  insurance,  on  the  whole,  has 
profited  twice  by  the  syndicate  or  joint  account  ventures: 
first,  by  the  money  gains  represented  to  the  policyholders, 
and  secondly,  in  the  prohibition  of  these  ventures  before  the 
same  could  become  a  general  menace. 

There  is  no  room  for  high  financiers  in  life  insurance, 
and  no  legitimate  field  for  high  finance.  The  laws  of  the 
different  States  wisely  restrict  the  investment  of  life  insur- 
ance to  lines  of  approved  securities  of  undoubted  stability 
and  value.  Life-insurance  moneys  must  be  invested  in 
bonds  of  approved  kind:  government  bonds,  municipal 
bonds,  public-utility  bonds,  bonds  of  selected  corporations  of 
undoubted  solvency,  first-mortgage  real-estate  loans  or  col- 
lateral loans  upon  pledges  of  such  investments,  or  upon 
policy  loans  as  contracted.  In  addition  to  this,  the  company 
may  invest  in  real  estate  necessary  to  the  conduct  of  its 
business,  and  take  over  such  real  estate  for  temporary  hold- 
ing as  may  come  to  it  through  foreclosure  of  mortgage 
loans. 

Here  is  the  account  in  dollars,  being  a  compilation  from 
annual  statements  rendered  as  of  date  December  31,  1907: 

Real  estate  owned $    169,968,545.00 

Bond  and  mortgage  loans 921,166,712.00 

Bonds  owned  1,280,359,719.00 

Stocks  owned i33J37,396.oo 

Collateral  loans  46,296,378.00 

Premium  notes  and  loans 348,458,980.00 

Cash  in  office  and  banks 67,345,019.00 

Net  deferred  and  unpaid  premiums 47,318,707.00 

All  other  assets 38,680,897.00 


$3,052,732,353.00 


186  The  Romance  of  Life  Insurance. 

The  list  is  not  long,  but  it  is  big  with  the  bigness  of 
supplying  the  larger  part  of  the  estates  of  all  citizens  of  our 
country  who  leave  anything  behind  them  for  their  widows, 
their  orphans,  or  their  other  dependents. 

Considering  the  chief  items  of  this  list  in  order,  real 
estate  comes  first.  In  asset  value  it  is  actually  less  than 
owned  five  years  ago,  when  life-insurance  assets  were  but 
two-thirds  present  size.  This  is  as  it  should  be,  for  real 
estate  has  not  proved  a  profitable  venture  for  life  insurance, 
even  when  the  advertisement  incident  to  owning  showy 
buildings  has  been  given  due  weight.  Without  the  facilities 
to  manage  improved  real-estate  property,  the  companies 
have  made  a  sorry  showing  as  a  whole  with  the  real  estate 
owned  throughout  the  country.  Upon  this  real-estate  item 
of  one  hundred  and  seventy  millions,  the  gross  rental  was 
approximately  eleven  million  dollars  during  1907,  with 
expenses,  taxes  and  repairs  amounting  to  sixty  per  cent  of 
the  gross  returns,  leaving  a  net  earning  rate  of  about  three 
per  cent,  and  this  on  the  basis  in  many  cases  of  holding 
values  largely  reduced  by  generously  charging  off  depre- 
ciation as  a  ledger  loss.  Some  companies  have  been  more 
fortunate  in  their  real  estate,  in  obtaining  greatly  more  than 
the  average  rate  given,  but  it  follows  from  this  that  others 
have  been  less  successful,  thus  bringing  the  rate  to  the  low 
average  stated. 

Massachusetts*  laws  provide  in  this  respect  that  "  no 
holding  of  real  estate  shall  be  given  a  higher  value  than 
would  be  adequate  to  yield  at  three  per  cent  annual  interest 
the  average  amount  of  its  net  rentals  for  three  years-  next 
preceding,"  allowing  the  insurance  commissioner  a  wise 
discretion  in  varying  this  rule  for  exceptional  cases.  The 
laws  in  other  States  recently  enacted  tend  to  prohibit  fur- 
ther investments  in  real  estate  not  necessary  to  the  trans- 


The  Stewardship  of  Three  Billions.  187 

action  of  the  company's  business,  and  provide  that  real 
estate  previously  acquired,  or  which  may  be  acquired 
through  foreclosure  of  mortgage  loans,  shall  be  disposed  of 
within  a  fixed  number  of  years,  with  the  discretion  to  the 
insurance  commissioner  to  vary  the  rule  where  a  forced  sale 
would  prove  inadvisable. 

The  matter  of  real-estate  investments  is  one  of  dwindling 
importance,  as  the  holdings  are  now  but  five  per  cent  of  the 
invested  assets,  having  reduced  to  that  sum  from  eight  per 
cent  in  1902.  They  will  continue  under  the  new  laws  to 
reduce  to  a  negligible  item. 

Bond  and  mortgage  loans  represent,  on  the  contrary,  an 
investment  increasing  both  in  actual  and  in  relative  size  and 
in  deserved  popularity.  The  amount  of  these  investments 
during  the  five  years  ending  with  1907  have  increased  eighty 
per  cent,  and  represent  an  investment  wherein  maximum 
security  is  usually  combined  with  maximum  interest  rate. 
With  most  companies,  mortgage  investments  are  made  only 
in  large  cities  and  on  improved  property,  while  with  a  few 
companies  of  the  West,  farm-loan  mortgages  have  been 
freely  purchased.  Mortgage  loans  are  particularly  valuable 
in  popularizing  a  life-insurance  company  as  tangibly  invest- 
ing its  money  in  territory  in  which  these  loans  are  placed. 
Of  course,  investments  in  bonds,  such  as  railroad  bonds, 
contribute  no  less  to  the  advancement  of  the  communities  in 
which  trackage  and  plants  are  located,  but  lacking  the 
tangibility  of  mortgage  money,  they  lack  also  in  arousing 
local  appreciation. 

There  are  objections  against  mortgage  loans  which  tend 
to  keep  down  the  aggregate  volume  of  these  loans  as  a 
relative  portion  of  the  entire  assets.  Mortgage  loans  —  and 
particularly  the  farm-mortgage  loans  —  require  intricate 
organization  if  the  company  is  to  invest  through  agents  of 


188  The  Romance  of  Life  Insurance. 

its  own,  and  where  companies,  remote  from  the  loaning 
points,  have  purchased  loans  through  unfamiliar  sources, 
the  quality  of  the  loans  has  too  frequently  proven  unsatis- 
factory. On  the  other  hand,  where  the  company  would 
maintain  loan  agents  of  its  own,  expense  is  involved  that 
more  or  less  offsets  the  larger  rate  realizable  from  this  class 
of  investment. 

Companies  domiciled  in  the  West,  obtaining  their  loans 
directly  or  through  sources  with  which  they  are  in  personal 
touch,  have  been  most  successful  in  farm  loaning,  and  con- 
stitute the  top-notch  interest-earners  among  the  companies. 

There  is  a  limit  to  the  amount  of  farm-loan  mortgages 
available,  on  conservative  valuations,  not  to  exceed  one- 
third,  or  at  most  one-half,  of  the  assessed  value  of  the 
unimproved  property.  It  would  appear,  however,  that  the 
prospective  loan  market  will  permit  of  profitable  investments 
in  mortgage  loans  that  will  maintain  the  ratio  which  they 
now  have,  of  thirty  per  cent  of  the  total  assets,  as  these 
assets  may  grow  within  the  next  decade. 

Another  objection  registered  against  mortgage  loans  is 
the  lack  of  quick  convertibility,  a  consideration  that  tends  to 
discourage  disproportionate  investments  in  mortgages  and 
suggest  the  advisability  of  a  good  line  of  bond  holdings. 

As  the  character  of  bonds  in  which  a  company  may 
invest  is  restricted  to  conservative  lines  by  statute,  the  chief 
points  to  be  considered  are  convertibility  and  rate,  though 
the  character  of  the  security  behind  the  bonds  is  never  over- 
looked, even  though  the  permissible  list  is  a  highly  preferred 
one.  Government  bonds  are,  of  course,  of  first  quality  and 
readily  convertible,  but  the  rate  on  these  bonds  is  usually 
too  low  to  make  advisable  any  relatively  large  holdings, 
where  other  forms  of  bonds  of  undoubted  security  can  be 
obtained  to  net  a  much  better  yield.  Municipal  bonds, 


The  Stewardship  of  Three  Billions.  189 

where  abundantly  good  and  convertible,  yield  returns  only 
less  meager  in  degree  than  "  governments,"  and  where  a 
municipal  bond  yields  a  good  rate  of  interest,  the  quality  of 
the  security  must  be  at  once  suspected.  Public-utility  bonds 
represent  available  life-insurance  investments,  and  are  advis- 
able investments  in  accordance  with  the  physical  values  and 
rights  behind  the  bonds,  the  assured  earning  powers  of  the 
corporations  and  the  convertibility  of  the  issues. 

Railroad  bonds  and  bonds  of  industrial  corporations 
listed  on  the  chief  stock  exchanges,  representing  unques- 
tioned values,  are  favorably  considered  because  of  their 
larger  earning  rate  and  ready  convertibility. 

No  inflexible  rule  can  be  set  up  for  fixing  the  security  of 
bonds  or  determining  what  bonds  of  solvent  corporations 
can  safely  be  invested  in  and  what  not,  or  what  class  of 
bonds  invariably  represents  preferred  security.  Any  num- 
ber of  expedients,  such  as  naming  the  particular  securities 
that  are  considered  good,  fixing  minimum  earnings  for  a 
minimum  number  of  years  preceding,  dividing  along  lines 
of  what  bonds  carry  mortgage  rights  and  what  not,  have  all 
been  found  unsatisfactory  as  not  unfailingly  applicable. 

After  struggling  with  this  problem  the  Armstrong  Inves- 
tigation Committee  came  to  the  conclusion  that  it  would  be 
unwise  to  amend  the  New  York  laws  to  set  up  any  such 
arbitrary  distinctions  between  the  bonds  of  solvent  corpora- 
tions. 

The  Armstrong  conclusion  upon  this  subject  is  worthy 
of  reproduction : 

It  is  difficult  to  draw  any  satisfactory  line  with  reference  to 
investments  in  negotiable  bonds.  It  would  not  be  advisable  to 
restrict  the  investments  of  life-insurance  companies  in  the  same 
manner  as  those  of  savings  banks.  The  securities  available  for 
investments  under  such  limitations  would  not  be  large  enough  in 


190  The  Romance  of  Life  Insurance. 

amount  to  furnish  a  sufficient  field  for  the  profitable  investment  of 
the  large  accumulations  of  insurance  corporations.  It  has  been 
feared  that  such  a  restriction  would  prove  to  be  too  severe,  and 
might  operate  so  far  as  to  increase  the  demand  for  the  favorite 
securities  as  to  preclude  a  satisfactory  rate  of  income.  After  such 
reflection  upon  this  subject,  the  committee  is  of  opinion  that  no 
satisfactory  line  can  be  drawn  with  reference  to  investments  in 
bonds,  other  than  collateral  trust  bonds,  without  hampering  the 
companies  in  the  enjoyment  of  that  reasonable  freedom  of  invest- 
ment necessary  to  insure  the  return  upon  which  the  calculations  of 
their  risk  are  based. 

There  are  two  points  in  this  conclusion  of  the  Armstrong 
Committee  that  are  particularly  thoughtful  and  call  for  com- 
ment. 

The  first  of  these  is  contained  in  the  concluding  words  of 
the  recommendation,  that  refer  to  interest  assumptions  in 
the  life-insurance  premium.  The  interest  assumption  in 
calculating  a  premium  is  vital  with  a  great  deal  of  the  impor- 
tance that  attached  to  conservative  mortality  assumptions. 
A  life-insurance  company  that  would  calculate  its  premiums 
upon  a  mortality  rate  less  than  what  it  would  afterward 
realize,  would  be  in  no  worse  position  than  a  life-insurance 
company  that  would  assume  to  earn  three  and  one-half  or 
four  per  cent  and  then  fail  to  net  such  interest  return.  The 
Armstrong  recommendation  serves  notice  that  safety  of  the 
life-insurance  companies  is  involved  in  allowing  them  the 
freedom  necessary  to  make  good  at  least  the  assumed  inter- 
est rates,  in  order  that  they  may  make  good  their  very  con- 
tracts. 

The  other  important  message  in  this  Armstrong  recom- 
mendation indicates  an  essential  difference  existing  between 
life-insurance  investments  and  banking  investments.  Other 
differences  become  apparent  upon  reflection.  A  life-insur- 
ance company  is  necessarily  a  company  dealing  in  futurities 


The  Stewardship  of  Three  Billions.  191 

in  the  sense  that  the  maturing  of  its  obligations  by  death, 
or  otherwise,  reaches  into  the  more  or  less  distant  future. 
With  the  life-insurance  company,  its  investment  rate  must 
be  assumed  at  a  conservative  figure,  because  it  extends  over 
the  entire  duration  of  the  contract,  whereas  a  bank  need  only 
fix  the  temporary  interest  rate,  as  this  is  a  matter  open  for 
adjustment  between  the  bank  and  the  customers.  Finally, 
the  life-insurance  policy  is  a  long-time  contract,  while  the 
bank  deposit  is  really  not  a  contract  at  all,  but  a  transaction 
of  temporary  convenience  subject  to  changes  in  the  rate  of 
interest  as  the  bank  sees  fit,  and  subject  to  termination  by 
the  depositor  in  the  withdrawal  of  the  deposit  immediately, 
or  upon  a  stipulated  short  notice. 

Regarding  the  interest  rate  itself,  it  is  almost  humorous 
to  note  how  the  rate  has  advanced  within  the  last  ten  years, 
in  face  of  the  contrary  prophesies  of  those  considered  best 
qualified  to  prophesy. 

Despite  the  most  learned  dissertations,  based  upon  the 
periods  of  invention,  discovery,  manufacturing  and  expan- 
sion, that  are  figured  out  first  to  increase  the  interest  rate 
and  then  be  followed  by  a  harvest  of  prosperity  that  in  turn 
reduces  it,  and  despite  other  most  plausible  deductions,  the 
contemporary  interest  rate  has  shown  a  persistent  tendency 
to  defy  alike  forecasts  of  economist  and  prophet. 

Some  ten  years  ago,  when  the  companies  began  to  doubt 
whether  four  per  cent  was  any  longer  a  conservative  interest 
assumption  for  life  insurance,  the  late  John  A.  McCall,  then 
president  of  the  New  York  Life,  gathered  together  a  sym- 
posium of  opinion  from  many  of  the  best  known  banking 
authorities  in  the  United  States.  These  men  were  then  of 
the  opinion  that  three  and  one-half  per  cent  was  as  large  a 
rate  as  it  would  be  safe  to  assume,  and  that  three  per  cent 
assumption  would  probably  be  the  most  advisable  for  life 


192  The  Romance  of  Life  Insurance. 

insurance,  almost  unanimously  concluding  that  the  rate  was 
'steadily,  though  gradually,  declining.  As  a  matter  of  fact, 
the  interest  rate  has  increased  instead  of  reducing  further, 
as  was  immediately  anticipated.  The  interest  pendulum  in 
the  impetus  of  its  downward  swing  had  at  that  very  time 
passed  the  low  point  in  its  arc  and  was  swinging  upward. 

There  is  a  point  in  life  insurance  beyond  which  con- 
servatism in  basic  assumptions  does  not  best  conserve  the 
interest  of  the  policyholders,  and  it  would  appear  that  over- 
conservatism  as  to  assumed  interest  rates,  while  much  less 
deplorable  than  insufficient  conservatism,  is  none  the  less 
calculated  to  increase  the  premiums  and  the  reserves  of 
policyholders  to  an  extent  that  calls  for  unnecessarily  large 
outlay  for  insurance  during  the  earlier  years.  For  example, 
an  interest  assumption  lower  than  three  per  cent  would  at 
this  time  be  unjustifiable  and  represent  conservatism  run 
mad  at  the  immediate  cost  of  the  insuring  public. 

There  are  other  forms  of  conservatism  in  life-insurance 
investments  which  call  for  extremes  of  prohibition,  thor- 
oughly advisable  in  life  insurance,  though  obviously  not 
elsewhere.  This  comment  covers  the  ownership  of  stocks  as 
life-insurance  investments.  Though  stocks  have  proven 
profitable  to  the  companies  in  point  of  earnings,  they  inher- 
ently include  an  element  of  speculation  which  serves  to 
militate  against  them  as  life-insurance  investments.  But 
above  all,  the  ownership  of  stocks  is  now  considered  inadvis- 
able, because  of  the  control  of  subsidiary  corporations  which 
this  ownership  may  entail. 

Theoretically,  there  is  much  to  be  said  in  favor  of  life- 
insurance  ownership  of  subsidiary  corporations  such  as 
banks  and  trust  companies,  for  the  company  must  of  neces- 
sity patronize  these  banking  institutions,  and  it  may  then  be 
argued,  why  not  obtain  the  additional  profit  of  the  middle 


The  Stewardship  of  Three  Billions.  193 

man  by  owning  or  controlling  the  institution?  Moreover, 
the  dominating  power  of  an  institution  should  mean  pre- 
ferred service  to  the  owners.  Giving  all  these  items  due 
weight,  and  adding  to  them  the  fact  that  such  ownership 
has  done  much  in  the  past  to  forward  cheap  life  insurance 
to  the  policyholder,  it  must  be  concluded  that  such  owner- 
ship carries  dangerous  temptations  in  the  power  it  gives 
those  in  command  of  life-insurance  investments  to  make 
a  round-about  profit  for  the  subsidiary  corporation  whose 
success  is  thus  assured. 

In  theory,  the  life-insurance  company  would  advantage 
itself  from  the  ownership  of  the  subsidiary  corporation,  but 
in  practice  the  subsidiary  corporation  might,  with  the  willing 
connivance  of  the  men  in  control  of  the  company's  invest- 
ments, advantage  itself  from  the  life-insurance  company 
where  the  men  controlling  the  investments  might  be  more 
interested  in  benefiting  the  minority  stockholders  of  the 
subsidiary  corporation  than  they  would  be  in  unselfishly 
advancing  the  interests  of  the  life-insurance  company. 

It  is  a  high  and  lasting  compliment  to  the  men  in  control 
of  life  insurance  that  subsidiary  corporations  have,  as  a 
whole,  not  been  used  for  unworthy  purposes.  In  the  few 
instances  in  which  they  appeared  in  the  investigation  to  have 
been  so  perverted,  the  responsible  miscreants  have  rightfully 
been  eliminated  from  the  business. 

Germany  was  the  first  country  to  pass  rules  prohibiting 
life-insurance  ownerships  of  stocks,  and  it  was  this  German 
rule  that  first  brought  the  prohibition  into  the  United  States. 
At  that  time  but  one  of  the  American  companies  operating 
abroad,  the  New  York  Life,  decided  to  dispose  of  its  stock 
and  conform  to  the  requirements  of  Germany.  The  other 
two  companies,  the  Equitable  and  the  Mutual,  were  strongly 
abetted  by  public  opinion  in  their  determination  not  to  do  so. 


194  The  Romance  of  Life  Insurance. 

Public  opinion  supplemented  by  the  Armstrong  investi- 
gation seems  now  persuaded  that,  while  the  ownership  of 
stocks  has  proved  profitable  in  the  past,  stocks  are  not  an 
advisable  investment  for  life  insurance.  This  public  opinion 
has  been  given  statutory  force  in  many  of  the  States  where 
new  laws,  as  in  New  York  State,  follow  the  German 
prohibition. 

Stocks  owned  by  the  American  companies  in  the  exhibit 
given,  aggregate  one  hundred  and  thirty-three  million  dol- 
lars, about  four  per  cent  of  the  total  assets,  a  percentage 
that  will  dwindle  to  the  disappearing  point. 

A  little  over  one  per  cent  of  the  companies'  investments 
are  in  collateral  loans  covered  by  deposits  of  securities  previ- 
ously mentioned  as  those  in  which  a  company  may  legally 
invest. 

Allied  with  collateral  loans  are  premium  notes  and  loans 
on  policies,  which  are  becoming  an  increasingly  important 
element,  representing  now  about  eleven  per  cent  of  the  total 
assets,  and  amounting  to  three  hundred  and  fifty  millions  of 
dollars.  To  distinguish  between  premium  notes  and  loans  it 
should  be  remembered  that  actual  premium  notes  are  an 
inconsiderable  sum,  and  that  these  notes  are  in  all  cases  only 
admitted  as  assets  as  they  are  secured  against  the  reserve 
values  of  the  policies. 

Policy  loans  are  a  matter  of  policy  contracts,  stipulating 
that  a  definite  amount  will  be  loaned  the  policyholder,  upon 
request,  during  the  various  policy  years,  at  a  fixed  interest 
rate.  The  amount  of  this  loan  is  usually  the  available  cash 
surrender  value.  With  some  companies,  it  is  the  available 
cash  surrender  value  at  the  time  of  making  the  loan,  and 
with  other  companies,  the  increased  cash  surrender  value 
one  year  hence,  deducting  a  payment  of  one  yearly  premium. 
Any  company  that  is  under  contract  to  pay  a  stipulated  cash 


The  Stewardship  of  Three  Billions.  195 

surrender  value  can  well  afford  to  loan  under  ordinary  con- 
ditions the  same  sum  upon  a  loan  note,  pledging  the  policy 
as  security. 

No  asset  in  life  insurance  is  better  secured  than  a  policy 
loan,  because  it  offsets  liability  directly  charged  against  the 
company  as  reserves  under  the  contract.  Policy  loans  are 
now  commonly  made  at  five  per  cent,  and,  as  the  loan  is 
placed  practically  without  expense  to  the  company,  it  is  a 
net  investment  at  that  figure. 

Cash  loans  and  surrender  features  are  at  variance  with 
the  long-term  contract  features  of  the  insurance  policy,  and 
perplex  the  life-insurance  situation,  tending  to  ally  insur- 
ance more  closely  to  banking  than  appears  on  first  survey. 
In  the  opinion  of  many  this  is  an  unfortunate  feature  and 
one  that  should  be  safeguarded  by  stipulations  calculated  to 
discourage  policy  loans  and  cash  surrender  values  except  for 
loaning  the  premiums  to  continue  the  insurance.  It  is  not, 
and  should  not  be,  within  the  designs  of  policy  loans  to 
furnish  money  in  times  of  money  stringency  at  less  than 
market  rates  for  market  speculation. 

Limitations  of  some  character  were  particularly  sug- 
gested in  the  increased  demand  for  policy  loans  made  upon 
the  companies  during  the  money  panic  of  1907.  The  impos- 
sibility of  getting  money  from  banks  or  trust  companies  dur- 
ing this  period  called  attention  of  policyholders  to  the  policy- 
loan  and  cash-surrender  features  of  their  contracts.  Policy 
loans  were  available  upon  these  contracts  at  five  and  six  per 
cent  interest,  when  the  price  of  money  was  ranging  much 
higher.  As  a  result  tremendous  loan  demand  was  made 
upon  the  companies. 

Policyholders  in  many  instances  became  aware  for  the 
first  time  of  the  tremendous  value  of  loan  features  in  life- 
insurance  policies,  and  some  companies  became  increasingly 


196  The  Romance  of  Life  Insurance. 

aware  of  the  degree  of  convertibility  and  the  quantity  of 
cash  balances  that  it  might  be  advisable  to  maintain  where 
policy  loans  at  agreed  interest  rates  may  offer  available 
money  at  much  less  than  the  current  market  rates.  The 
president  of  one  of  the  largest  life-insurance  companies  in 
the  country,  a  financier  of  unquestioned  foresight  and  integ- 
rity, considers  the  lesson  of  the  panic  of  1907  to  be  that  life- 
insurance  policies  should  not  stipulate  an  interest  rate  for 
policy  loans,  but  should  leave  the  rate  open  to  be  determined 
by  ruling  prices  of  money.  In  this  way  a  life-insurance 
company  could  hedge  against  the  position  of  supplying 
money  at  less  than  market  prices,  and  having  its  policies 
utilized,  not  in  the  original  intention  of  accommodating 
policyholders  in  time  of  need,  for  payment  of  premiums  or 
otherwise,  but  offering  available  money  for  reinvestment 
and  temptation  to  pervert  the  insurance  from  its  original 
protective  mission. 

The  1907  panic  supplies  a  striking  commentary  upon  the 
relative  superiority  of  life-insurance  financiers  in  investing 
to  cover  obligations  and  fit  investments  to  circumstances. 
Banks  and  trust  companies,  whose  moneys  were  accepted  for 
the  immediate  demand  of  patrons,  withheld  these  moneys 
from  them  in  absolute  conflict  with  the  terms  of  deposit  and 
the  laws  of  the  land,  while  the  life-insurance  companies,  only 
incidentally  having  loan  features  to  their  contracts,  met  all 
demands  in  strict  accordance  with  the  terms  of  their  con- 
tracts. 

While  life-insurance  money  must  be  promptly  invested, 
because  its  theory  assumes  the  compounding  of  its  moneys, 
it  is  absolutely  mandatory  to  retain  cash  balances  for  imme- 
diate expenditures  and  against  the  necessity  of  otherwise 
unexpectedly  being  called  upon  to  convert  securities. 

The  companies  hold  about  two  per  cent  of  their  total 


The  Stewardship  of  Three  Billions.  197 

assets  in  available  cash ;  this  sum  being  for  the  most  part 
on  draw,  commands  only  a  low  interest  rate,  about  two  per 
cent.  These  items,  together  with  uncollected  premiums  out- 
standing and  unpaid  instalments  of  annual  premiums,  and 
all  other  assets  of  minor  account,  aggregating  less  than 
three  per  cent  of  the  whole  invested  assets,  constitute  the 
entire  investment  of  life  insurance. 

Compilations  made  from  the  Massachusetts  and  Con- 
necticut reports  show  life  insurance  as  a  whole  earned  4.73 
per  cent  upon  its  investments  during  1907,  which  is  a  slight 
increase  over  the  years  immediately  preceding.  In  1906, 
1905  and  1904,  the  earnings  were  respectively  4.63,  4.57  and 
4.59  per  cent,  according  to  the  Brown  Book  of  Life-insur- 
ance Economics.  To  otain  these  rates  no  sacrifice  has  been 
made  in  the  quality  of  the  investments  or  in  the  character  of 
loans  happily  held  to  high  standards  by  laws  wisely  limiting 
the  investment  within  margins  as  narrow  as  is  advisable, 
considering  interest  assumptions  necessary  to  realize. 

New  legislation  has  not  in  all  cases  been  of  an  equally 
intelligent  and  beneficial  type,  and. thought  needs  be  directed 
to  reforming  some  of  the  reform  ideas  propagated  since  the 
Equitable  embroglio  brought  on  the  needed  legislative 
investigation  of  life  insurance. 

One  effect  of  the  investigation  was  to  arouse  national 
indignation  that  a  group  of  New  York  financiers  would 
appear  to  have  profited  through  handling  the  insurance 
moneys  of  a  whole  country.  While  in  isolated  cases  this 
indignation  was  grounded  on  fact,  it  was  none  the  less  gen- 
erally misdirected,  so  far  as  it  created  sentiment  for  com- 
pelling through  legislation  local  investments  of  life-insur- 
ance moneys. 

Wall  Street  and  the  huge  New  York  banking  houses 
commonly  understood  by  that  term  are  naturally  investment 


198  The  Romance  of  Life  Insurance. 

sources  for  eastern  money,  and  the  fact  that  money  was 
handled  through  these  houses  in  purchases  of  bonds  and 
mortgages  does  not  belie  the  fact  that  it  covered  investments 
in  physical  properties,  buildings,  railroad  mileage,  shops, 
rolling  stock  and  the  other  tangible  property  behind  the 
bond  and  mortgage  rights,  which  spread  over  the  face  of 
the  whole  country  and  the  whole  civilized  map. 

Every  man  has  constitutional  right  to  spend  his  own 
money  in  his  own  way,  and  if  a  policyholder  wishes  to  keep 
his  money  at  home,  in  the  sense  that  an  investment  is  to  be 
made  through  local  avenues,  it  is  usually  within  his  province 
to  patronize  local  institutions  or  other  institutions  so  invest- 
ing their  money. 

The  State  has  no  excuse  for  legally  compelling  the 
investment  of  policyholders'  funds  in  its  home  securities. 
If  these  investments  are  of  a  quality  that  need  legislative 
support  in  order  to  make  a  market  for  them,  they  are 
confessedly  disqualified  from  being  fit  investments  for  life- 
insurance  funds.  Instead  of  being  a  benefit  to  the 
policyholder,  legislation  of  this  character,  under  such  cir- 
cumstances, is  an  infamous  imposition.  If  these  State 
investments  are  good  enough  to  command  purchasers,  they 
are  reasonably  sure  to  receive  a  liberal  patronage  from  life 
insurance.  Even  if  the  securities  are  of  undoubted  quality, 
but  of  limited  volume,  it  is  inadvisable  to  compel  life  insur- 
ance to  invest  in  them,  because  this  would  create  an  artificial 
market  for  such  investments  that  would  be  ruinous  as  to 
rate. 

Yet  Texas  passed  a  law  of  this  kind,  the  Robertson  Law, 
which  calls  for  the  investment  in  Texas  of  three-quarters  of 
the  reserves  held  upon  Texas  policies.  This  law  was  enacted 
in  a  particularly  odious  form,  carrying  a  deposit  feature 
which  forced  the  deposit  of  Texas  securities  in  certain 


The  Stewardship  of  Three  Billions.  199 

counties  in  Texas,  where  they  were  to  be  made  the  subject 
of  a  county  tax.  One  of  the  chief  reasons  advanced  for  the 
Robertson  Law  was  to  obtain  extra  revenue  from  taxing 
these  enforced  deposits,  wholly  regardless  of  the  fact  that 
this  tax  was  an  extra  burden  upon  the  already  overtaxed 
policyholder  and  an  added  cost  to  his  insurance. 

As  a  result  of  this  law,  which  has  since  been  modified  by 
the  Legislature  of  1909  to  eliminate  the  tax  feature,  nearly 
all  of  the  companies  of  other  States  operating  in  Texas 
withdrew  from  the  State.  Since  similar  laws  have  been 
agitated  in  other  western  States,  it  is  of  more  than  ordinary 
moment  to  understand  why  legislation  of  this  kind  is  unde- 
sirable and  predicated  on  incorrect  and  vicious  principles. 

Grover  Cleveland  touched  upon  this  feature  of  compul- 
sory life-insurance  investments  within  the  different  States 
when  he  contributed,  among  his  last  writings,  the  following : 

The  State  does  not  propose  to  stand  behind  or  guarantee  such 
securities  as  the  companies  must  purchase  under  such  legislation. 
It  does  not  propose  in  any  way  to  protect  the  companies  against 
exorbitant  prices  easily  exacted  from  the  necessitous  or  forced  pur- 
chaser. It  is  not  contemplated  that  the  securities  thus  forced  upon 
the  companies  shall  constitute  the  fund  to  which  the  policyholders 
of  the  State  must  look  for  the  payment  of  their  policies,  nor  that 
it  shall  be  even  the  primary  fund  for  such  payment.  It  matters 
not  how  many  States  pass  similar  statutes  (as  a  number  threaten 
to  do),  nor  how  much  of  the  resources  of  the  companies  may  be 
actually  impaired  under  this  aggregate  operation;  nor  does  it  mat- 
ter whether  these  forced  investments  are  good  or  bad,  whether  they 
are  quickly  covertible,  or  not  convertible  at  all,  whether  they  are  in 
the  custody  of  the  companies  or  of  the  officers  of  the  several  States, 
as  is  in  some  cases  proposed  —  in  all  contingencies,  policies  and 
premiums  must  be  paid  as  they  accrue.  None  of  us  have,  in  our 
biblical  reading,  discovered  any  incident  which  smacked  more  of 
unfairness  and  oppression  than  the  exaction  by  the  strong  that  those 
at  their  mercy  should  "  make  bricks  without  straw." 
12 


200  The  Romance  of  Life  Insurance. 

Mr.  Cleveland  concludes: 

Confronted  with  such  a  menacing  invitation  to  popular  thought, 
is  it  not  wise  to  consider  the  importance  of  protecting  and  pre- 
serving in  our  States  the  spirit  of  brotherhood  and  forbearance, 
which  the  fathers  of  the  republic  evidently  believed  would  charac- 
terize their  legislative  treatment  of  the  citizens  and  interests  of  their 
fellow  members  in  a  great  nationality? 

Another  thought  for  legislative  consideration  is  summed 
up  in  the  need  for  a  law  which  would  put  life-insurance 
bond  holdings  upon  a  value  determined  by  the  effective 
interest  rates  for  which  they  are  purchased,  instead  of  sub- 
jecting these  assets  to  market  fluctuations,  by  rating  them 
as  at  present  according  to  current  stock-exchange  prices. 
This  proposed  "  amortization  "  means  that  a  bond  purchased 
at  either  a  premium  or  a  discount  would  carry  an  asset  value 
that  would  represent  the  true  value  of  the  bonds  when  the 
interest  returns  are  considered  in  connection  with  the  fact 
that  the  bonds  will  mature  at  face  value  and  not  at  the 
purchase  value. 

Life-insurance  investments  are  designed  for  permanent 
holdings,  and  not  to  be  purchased  and  resold  for  stock- 
jobbing speculation.  It  is  therefore  unreasonable  to  figure 
the  value  of  life-insurance  holdings  on  a  basis  of  market 
values  fluctuating  with  market  conditions. 

In  1907,  at  the  time  of  the  money  panic,  all  securities 
reflected  money  scarcity  in  their  low  market  values.  These 
low  market  values  were  everywhere  recognized  as  being  the 
artificial  product  of  temporary  conditions.  Yet  life  insur- 
ance was  forced  to  list  its  assets  as  of  December  31,  1907,  in 
accordance  with  the  low  artificial  values  then  fixed  for  bond 
holdings  by  the  last  sales  on  stock  exchanges,  utterly  ignor- 
ing the  fact  that  the  market  conditions  were  freak  condi- 


The  Stewardship  of  Three  Billions.  201 

tions,  that  the  bonds  were  paying  exactly  the  interest  returns 
that  they  had  been  purchased  to  pay  and  would  doubtless 
mature  exactly  at  the  value  and  date  at  which  they  had  been 
purchased  to  mature. 

During  the  succeeding  year  these  securities  reacted  back 
toward  normal  prices.  Consequently  abnormal  and  fictitious 
asset  gains  are  shown  in  company  statements  for  the  year 
ending  December  31,  1908,  just  as  the  statements  of  1907 
showed  fictitious  losses  in  values  that  more  than  wiped  out 
the  margin  of  unassigned  funds  contemplated  for  the  larger 
companies  in  the  perilous  restrictions  of  New  York  laws. 

Governor  Hughes  has  taken  heed  of  this  unfortunate 
condition  in  his  message  to  the  New  York  Legislature. 
Pursuant  to  recommendation  of  Governor  Hughes,  the  New 
York  Legislature,  in  the  1909  session,  amended  the  laws  to 
permit  of  the  use  of  amortized  bond  valuations  that  elim- 
inate the  danger  to  a  company's  solvency  through  abnormally 
depressed  market  conditions  compelling  gross  undervalua- 
tion of  securities.  Superintendent  Kelsey's  last  report  to  the 
legislature  also  contained  recommendations  for  amortized 
bond  holdings,  to  which  he  coupled  a  recommendation  that 
the  contingency  reserve  of  these  large  companies  be  fixed  at 
a  minimum  point  of  security,  and  that  the  new  legislation 
which  served  to  limit  the  maximum  security  of  a  life- 
insurance  company  be  repealed. 

Previous  life-insurance  legislation  has  been  controverted 
in  the  provisions  of  these  new  laws  limiting  company  secur- 
ity. This  limit  of  security  was  brought  about  by  limiting 
the  amount  of  unassigned  funds  which  any  company  could 
hold.  Operating  with  laws  that  compel  the  valuation  of 
permanent  investment  at  current  market  prices,  the  mini- 
mi-rn  surplus  provision  of  the  new  Armstrong  laws  would, 
and  already  has  during  the  panic  of  1907,  put  some  of  the 


202  The  Romance  of  Life  Insurance. 

large  life-insurance  companies,  which  are  without  doubt  the 
most  sound  and  solvent  institutions  in  the  Union,  upon  a 
basis  of  technical  temporary  insolvency. 

With  the  abolishment  of  the  deferred-dividend  system  of 
retaining  the  policyholders'  surplus  for  long  periods,  all 
participating  life-insurance  companies1  are  on  a  basis  of 
annual-dividend  competition.  Clearly  dividend  competition 
can  be  expected  to  remove  any  necessity  for  limiting  the 
amount  of  unassigned  funds  retained  by  mutual  life-insur- 
ance companies,  and  to  the  contrary  appears  to  call  for  alert 
supervision  to  keep  the  struggle  to  excel  in  dividend  pay- 
ment from  indulgence  that  saps  needed  company  strength. 

Safeguarded  by  wise  life-insurance  laws  which  restrict 
in  general  classification  the  securities  in  which  life  insurance 
may  invest,  life  insurance  has  been  further  secured  in  the 
competent  exercise  of  the  discretion  allowed  to  investment 
managers. 

Life-insurance  investment  laws  have  recognized  with  a 
force  that  does  not  appear  in  certain  other  forms  of  life- 
insurance  legislation,  the  fact  that  the  details  of  management 
must  be  left  for  expert  trade  competency,  to  select  among 
the  permissible  classes  of  investment  and  determine  the  pro- 
portion to  invest  in  the  different  forms  of  permissible 
securities.  The  investment  laws  recognize  that  these  details 
can  not  be  predetermined  and  should  not  be  subjected  to 
arbitrary  and  inflexible  legislation. 

Perhaps  no  higher  testimonial  could  be  paid  to  life  insur- 
ance in  the  matter  of  discharging  its  investment  steward- 
ship, than  the  unconscious  tribute  of  one  of  the  country's 
former  great  financiers,  Frederick  D.  Tappen,  twice  presi- 
dent of  the  New  York  Clearing-house,  who  died,  leaving 
behind  a  will  directing  his  trustees  to  invest  the  funds  of  his 
estate  in  such  securities  only  as  were  owned  by  the  largest 


The  Stewardship  of  Three  Billions.  203 

life-insurance  company  in  America,  which  he  designated  by 
name. 

With  the  few  legislative  corrections  that  would  substitute 
amortized  bond  values  for  market  values ;  that  would  abol- 
ish restrictions  that  operate  against  the  historic  precedent  of 
limiting  weakness  instead  of  strength;  that  would  repeal 
the  Robertson  Texas  law  enforcing  Texas  investments,  and 
create  legislative  sentiment  against  statutes  compelling  local 
investments,  the  cause  of  sound  life-insurance  investments 
will  be  further  advanced  to  the  direct  benefaction  of  the 
policyholder. 


CHAPTER   XII. 
INSURING  THE  MASSES. 

"IN  God's  name,  who  are  you?"  is  the  intensely  dramatic 
1  question  of  the  powerful  play,  "  The  Servant  in  the 
House,'*  which  carries  the  crux  of  the  drama  in  the  response : 
"  In  God's  name,  your  brother."  Those  who  have  seen  the 
play,  recalling  the  tense,  closing  moments  of  the  puzzling 
allegorical  drama,  will  also  recall  the  floodtide  of  under- 
standing which  comes  with  this  solemn  pronouncement  upon 
the  brotherhood  of  man. 

Class  and  mass  have  misunderstood  one  another  and 
drifted  apart  not  so  much  from  conditions  that  forbid  agree- 
ment as  from  lack  of  appreciation  of  one  another's  motives, 
lack  of  something  of  the  brotherhood  of  man.  If  half  the 
world  does  not  know  how  the  other  half  lives,  why  not 
withhold  judgment  pending  more  familiar  acquaintance? 
Though  this  acquaintanceship  be  not  destined  ever  to  reach 
to  making  the  whole  class  understand  the  whole  mass,  or 
vice  versa,  it  is  easily  possible  for  individuals  of  class  or 
mass  to  come  to  quick  appreciation  that  environs  and  cir- 
cumstances are,  like  the  necessities  they  create,  but  artificial 
things,  and  the  brand  they  burn  is  but  a  skin-deep  searing 
that  changes  not  the  heart  or  the  humanity  common  to  all 
in  all  conditions  and  spheres  of  life. 

No  one  out  of  sympathy  with  his  fellow  man  is  in  fit 
mood  to  deal  with  the  topic  of  industrial  insurance. 

Perhaps  no  other  business  of  its  magnitude,  and  cer- 
tainly no  other  institution  of  similar  economic  benefit,  has 
ever  been  more  misunderstood  or  more  unthinkingly  mis- 


JOHN  R.  HEGEMAN,  President,  Metropolitan  Life; 
JOHN  F.  DRYDEN,  President,  Prudential  Insurance  Com- 
pany; STEPHEN  H.  RHODES,  recently  deceased  Presi- 
dent of  the  John  Hancock  Mutual  Life;  builders  of  indus- 
trial insurance  in  America.  The  three  companies  named 
represent  in  their  membership  ninety-five  per  cent  of  the 
industrial-insurance  business  in  America. 


INSURING  THE  MASSES. 


44 


Iramatic 

power  ant   in  the 

in  the  response  : 

>ur  brother."    1"  the 

calling  the  tense,  closing  momc  muzzling 

ama    will  also  recall  the  flo<. 

upon 


and 

tt^inicfi^it} 

o^e^motte^  motives, 
If  half  the 


vice  vet 
mass  to 
cumstan- 
things,  and  the 
that  changes  no 
in  all  conditions 

No  one  out  of  syn 
mood  to  deal  with  the  t< 

Perhaps  no  other  1 
tainly  no  other  institut 


aiwra  A  r  i 


not 


-each 

».iss,  or 

of  class  or 

nvirons  and  cir- 

create,  but  artificial 

but  a  skin-deep  searing 

umanity  common  to  all 


fellow  man  is  in  fit 
trial  insurance. 
its  magnitude,  and  cer- 
ir economic  benefit,  has 
ever  been  more  misunderst  more  unthinkingly  mis- 

204 


STEPHEN 
H.  RHODES. 


JOHN  F.  DRYDEN. 


Insuring  the  Masses.  207 

judged  by  those  who  did  not  know,  or  who  would  not 
understand,  than  has  the  corporate  business  of  industrial  life 
insurance.  Popularly  described,  it  is  life  insurance  at  retail 
supplied  in  such  small  amounts  as  can  be  purchased  by  a 
weekly  premium  collected  at  the  policyholder's  address  in 
the  unit  of  five  cents  or  multiples  thereof. 

Going  back  to  the  very  inception  of  industrial  insurance, 
we  find  in  it  a  struggling  expression  of  the  brotherhood  of 
men.  To  bury  the  dead  has  been  a  corporate  work  of  mercy 
from  the  inception  of  human  existence,  and  will  so  remain 
as  long  as  human  life  remains ;  an  obligation  that  we  under- 
take for  one  another,  an  obligation  which  others  must  under- 
take for  us.  Guilds,  burial  clubs  and  friendly  societies  sup- 
plied for  centuries  in  England  organizations  for  taking  care 
of  obligations  brought  on  by  sickness  and  death  of  members. 
Organized  by  the  working  classes,  these  associations  were 
crude  and  unscientific.  As  supplying,  however,  a  natural 
need  and  furnishing  working  classes  assurance  of  decent 
burial,  these  societies  thrived  and  multiplied  in  their  mem- 
bership. 

The  quality  of  the  assurance  or  safety  behind  these 
guilds  or  burial  clubs  was  unsatisfactory  and  resulted  too 
often  in  the  bankruptcy  of  the  organization,  with  great  loss 
and  distress  to  the  membership.  Parliament,  viewing  this 
endeavor  to  guard  against  the  urgent  contingency  of  unpro- 
vided death,  and  recognizing  the  social  and  economic  utility 
of  such  endeavors,  vigorously  pointed  out  in  official  report 
the  unscientific  character  and  inherent  weaknesses  of  the 
assurance  associations  as  constituted  at  that  time.  This 
report  focused  attention  upon  the  need  of  what  we  have 
come  to  know  as  industrial  life  insurance,  which  at  that  time 
in  unsafe  and  unscientific  guild  associations  had  three  mil- 
lions of  membership  in  the  United  Kingdom. 


208  The  Romance  of  Life  Insurance. 

Following  the  recommendations  of  the  parliamentary 
commission,  an  English  life-insurance  company  commenced 
in  the  year  1854  the  issuance  of  industrial  policies  for  con- 
tracts of  small  amount  of  insurance  upon  a  weekly  premium 
basis,  the  premiums  being  collected  then  as  now  from  the 
houses  of  the  insured.  This  company,  the  Prudential  of 
England,  operated  in  active  competition  to  the  old  burial 
clubs,  and  outstripped  these  in  the  course  of  a  few  short 
years,  as  the  public  came  generally  to  understand  that  insur- 
ance that  did  not  insure  was  the  most  worthless  of  all  com- 
modities, and  that  life  insurance  was  an  involved  and  intri- 
cate business  of  long-time  contracts,  the  ultimate  success  of 
which  could  only  be  assured  by  the  adoption  of  scientific 
principles  and  by  the  conduct  of  its  affairs  on  a  business 
basis. 

After  the  Prudential  had  experimented  for  ten  years 
with  the  industrial  branch,  it  attained  an  income  of  about 
$300,000,  which  seemed  to  assure  the  ultimate  success  of  the 
company  and  of  industrial  life  insurance.  This  success 
attracted  the  attention  of  Mr.  Gladstone,  the  "  grand  old 
man,"  who  was  at  that  time  Chancellor  of  the  British 
Exchequer.  Mr.  Gladstone  concluded,  as  many  less  eminent 
statesmen  and  economists  have  erroneously  concluded  since, 
that  the  business  of  industrial  life  insurance  could  and 
should  be  successfully  undertaken  by  the  government.  This 
was  not  a  new  thought  in  English  affairs,  and  was  expressed 
in  less  definite  form  as  early  as  1773.  Eleven  years  prior  to 
the  time  Mr.  Gladstone  openly  championed  postoffice  life 
insurance  there  had  been  an  effort  made  toward  government 
life  insurance  without  practical  results,  as  during  the  entire 
interim  until  1864  not  a  single  application  for  government 
life  insurance  had  been  received. 

In  the  meantime  postoffice  savings  banks  had  been  estab- 


Insuring  the  Masses.  209 

lished  in  England  and  had  achieved  instantaneous  success, 
replacing  private  institutions  of  uncertain  stability  and  solv- 
ency. Mr.  Gladstone,  without  giving  force  to  that  almost 
unaccountable  condition  that  restrains  people  from  applying 
for  insurance  as  they  would  purchase  other  necessities  of 
life,  or  as  they  would  voluntarily  make  deposits  in  savings 
banks,  concluded  that  postoffice  life  insurance  would  supply 
the  industrial  insurance  needs  of  the  populace,  and  be  con- 
ducted more  economically  than  company  insurance  by  doing 
away  with  the  agent  and  the  collector. 

There  is  so  much  to  be  said  theoretically  in  favor  of 
postoffice  insurance,  or  government  insurance,  or  "  over-the- 
counter  "  insurance,  not  only  for  industrial  insurance  but 
every  other  form  of  life  insurance,  that  it  is  not  surprising 
that  Mr.  Gladstone,  lacking  historic  precedent  now  available, 
should  pass  from  the  advocacy  of  the  postoffice  system  of 
eliminating  the  agent  to  bitter  attack  on  the  Prudential  as  a 
corporate  industrial  organization,  necessarily  employing 
agents  to  preach  the  gospel  of  industrial  insurance  and  to 
carry  its  mission  straight  to  the  household,  where  it  could 
not  be  denied. 

While  industrial  life  insurance  had  not  as  yet  made  its 
appearance  in  America,  Mr.  Gladstone  received  American 
support  in  the  person  of  Elizur  Wright,  the  first  insurance 
commissioner  of  Massachusetts  and  a  foremost  American 
actuary.  Elizur  Wright  joined  hands  with  Mr.  Gladstone 
^y  proposing  a  system  of  government  industrial  insurance 
in  the  United  States  corresponding  to  the  Gladstone  proposi- 
tion abroad.  This  was  in  1864,  in  the  early  infancy  of  cor- 
porate industrial  insurance  by  the  Prudential  of  London, 
and  at  a  time  when  the  Prudential  had  gone  into  the  busi- 
ness because  of  the  poorer  people's  need  for  solvent  and 


210  The  Romance  of  Life  Insurance. 

staple  insurance  as  a  substitute  for  the  irresponsible  friendly 
societies  and  guilds. 

Forty-five  years  and  more  have  elapsed  since  the  estab- 
lishment of  British  postoffice  departments  for  furnishing 
over-the-counter  industrial  life  insurance,  in  opposition  to 
the  infant  Prudential  incorporated  to  serve  the  same  class  by 
the  commercial  expedient  of  agency  organization  with  its 
incidental  burden  of  expense.  In  the  thirty-seven  years  end- 
ing January  I,  1902,  industrial  companies  of  England  had 
built  up  a  clientage  carrying  twenty-one  million  policies  in 
force,  whereas  the  government  postofiice  system  had  but 
fifteen  thousand  contracts  outstanding.  The  disparity  has 
grown  even  more  marked  in  the  years  that  have  elapsed 
since,  as  the  Prudential  goes  on  spreading  its  gospel  of  pro- 
tection in  a  practical  way,  while  the  postoffice  system  marks 
time  with  its  impracticable  over-the-counter  theory. 

The  postofiice  insurance  system  of  England  fails  like 
socialism  of  more  marked  characteristics  has  failed,  not 
because  it  is  not  theoretically  desirable,  but  because  human- 
ity is  what  it  is,  and  is  not  what  it  theoretically  ought  to  be. 

Industrial  insurance  was  introduced  in  America  by  John 
F.  Dryden,  president  of  the  Prudential  Life  Insurance  Com- 
pany of  America.  The  need  of  the  system  was  felt  keenly 
in  this  country.  This  need  was  repeatedly  voiced  by  far- 
sighted  economists  at  that  time,  nowhere,  more  pointedly 
than  by  the  labor  commissioner  of  Massachusetts  in  his 
report  for  the  year  1872,  where,  after  setting  forth  the  need 
of  industrial  life  insurance  and  the  lack  of  prudent  habits 
which  its  thrifty  plan  would  promote,  he  said: 

These  considerations  suggest  the  important  subject  of  life  insur- 
ance as  a  means  of  benefiting  the  workingman's  family  in  case  of 
death.  It  is  not  our  function  to  enter  at  large  upon  such  details, 
and  we  content  ourselves  by  merely  saying  that  small  investments 


Insuring  the  Masses.  21 1 

in  life  policies  will  result  in  great  and  material  aid  to  a  family  on 
the  death  of  its  natural  protector  and  support.  The  subject  is  too 
important  to  be  overlooked  by  persons  of  small  means  and  small 
savings. 

Capitalizing  the  need  and  sentiment  for  a  system  simi- 
lar to  the  British  industrial  system,  Mr.  Dryden  and  his 
associates  in  1875  secured  the  charter  of  the  "  Widows'  and 
Orphans*  Benefit  Society,"  a  sick-benefit  and  burial  society 
organized  in  1873.  The  name  was  changed  to  the  "  Pruden- 
tial Friendly  Society "  and  in  1877  to  the  "  Prudential 
Insurance  Company  of  America,"  in  which  name  the  insti- 
tution has  since  continued.  During  the  first  complete  year 
of  operation,  when  the  company  worked  chiefly  in  Newark 
and  not  outside  the  State  of  New  Jersey,  it  obtained  applica- 
tions for  7904  policies.  The  following  year  applications  for 
10,521  policies  were  received,  and  nearly  double  that  number 
the  next  year,  after  which  the  company  extended  its  opera- 
tions to  New  York  and  Pennsylvania. 

Other  corporations  entered  the  industrial  life-insurance 
field,  among  which  was  the  company  now  known  as  the 
Metropolitan  Life  Insurance  Company,  then  doing  a  small 
ordinary  insurance  business,  and  the  John  Hancock  Mutual 
Life  Insurance  Company.  In  1879  these  three  companies 
had  about  sixty  thousand  policies  in  force.  Spurred  on  by 
competition,  the  number  of  policies  in  force  were  multi- 
plied nearly  four  times  during  the  following  year,  so  that 
at  the  end  of  1880  the  companies  had  in  force  two  hundred 
and  thirty  thousand.  Ten  years  later,  in  1890,  industrial 
insurance  in  America  had  in  force  three  million  eight  hun- 
dred thousand  policies.  This  total  was  nearly  tripled  in  the 
decade  following,  showing  at  the  end  of  the  year  1900 
twelve  million  policies  in  force,  which  have  increased  since 
to  some  twenty  million  policies  outstanding  at  the  beginning 


212  The  Romance  of  Life  Insurance. 

of  1909.  On  the  average  two  out  of  every  nine  living  men, 
women  and  children  in  the  United  States  are  insured  under 
an  industrial  policy. 

What  this  means  to  the  State  and  to  the  country  in 
doing  away  with  pauper  burials,  and  pauperism  in  general, 
as  a  direct  benefit  of  industrial  insurance  and  in  the  indirect 
promotion  of  thrift  as  evidenced  in  increased  savings-bank 
accounts  and  other  provident  advances,  which  have  gone 
hand  in  hand  with  the  expansion  of  the  industrial  business, 
can  scarcely  be  overestimated.  To  the  individual  covered 
by  this  insurance,  the  policy  stands  like  the  ordinary  policy 
as  a  protector  of  the  hearth,  but  more  than  this  the  industrial 
policy  stands  as  a  preserver  of  the  person  in  assuring  the 
dignity  of  decent  burial. 

"  Before  industrial  insurance  came  into  existence/'  says 
John  F.  Dryden,  who  introduced  it  in  America,  "  the  aver- 
age annual  pauper  burial  rate  was  23.4  per  ten  thousand  of 
population;  it  had  fallen  to  15.6  by  1890,  and  to  n.8  by 
1904.  Upon  the  lowest  estimate  of  expense  the  annual  sav- 
ing to  American  taxpayers  on  account  of  this  reduction  is 
$250,000  a  year.  At  least  thirty  thousand  persons  are  now 
buried  annually  at  their  own  expense  who  would  be  buried 
in  the  potters'  field  if  the  present  burial  rate  of  paupers  were 
the  same  as  the  rate  prevailing  before  the  introduction  of 
industrial  insurance." 

Specters  conjured  from  the  potters'  field,  or  from  con- 
templating the  impoverishment  that  follows  the  more  well- 
to-do  laboring  classes  when  they  are  called  upon  unex- 
pectedly to  provide  sickness  and  funeral  funds,  is  a  vision 
remote  from  the  observation  of  those  well-fed  critics  who 
think,  or  prefer  to  think,  industrial  insurance  a  parasite  on 
the  poor. 

Fancy  such  critic  in  the  small  tenement  neatly  kept,  but 


Insuring  the  Masses.  213 

poor  enough  through  normal  conditions,  and  pitifully  poor 
when  death  knocks.  The  corpse,  in  the  lack  of  accommoda- 
tions, is  in  one  of  the  over-peopled  rooms,  laid  out  on  a 
temporary  makeshift  bier.  The  undertaker  comes.  What 
is  his  first  question  to  the  bereaved  family  surrounding  the 
body,  no  less  beloved  through  their  inability  to  have  sup- 
plied it  in  life  with  some  of  life's  luxuries  and  take  from  it 
in  death  all  of  death's  terrors  ?  He  wants  to  know  if  there 
is  an  insurance  policy  in  force.  If  so,  as  part  of  his  trade, 
this  undertaker  will  help  to  make  death  less  terrible.  If  not, 
he  takes  an  abrupt  departure,  leaving  a  heart-rending  situa- 
tion of  money  paucity  that  might,  through  the  industrial- 
insurance  system,  have  been  eliminated  by  the  cost  of  a 
car  ride  a  week,  or  the  self-denial  represented  in  the  price  of 
an  occasional  cheap  cigar  or  glass  of  liquor. 

Industrial  insurance  does  not  aim  to  touch  a  lower  social 
status.  It  is  meant  for  the  honest  poor,  but  not  for  the 
indigent  pauper.  It  goes  on  up  the  scale.  When  death 
strikes  the  home  of  the  thrifty  cottager,  whichever  member 
of  the  family  it  may  be,  the  industrial  policy  serves  as  no 
other  instrument  or  institution  can  serve,  in  the  absence  of 
accumulations  to  take  care  of  such  contingencies. 

Accumulations  mean  savings,  and  savings  of  years, 
before  the  word  "  accumulations "  can  with  dignity  be 
applied.  It  is  well  to  prate  on  savings,  but  in  the  stern 
realities  of  life  it  is  practically  impossible  for  certain  classes 
served  by  industrial  policies  to  prepare  by  savings  against 
death's  visitations,  and  where  the  industrial  condition  per- 
mits of  savings,  the  industrial  policy  is  often  the  instrument 
that  has  fixed  the  habit.  Industrial  insurance  and  savings 
accounts  go  hand  in  hand,  and  the  activity  of  the  former 
has  lent  historic  impetus  to  the  force  of  the  latter. 

Industrial  insurance  develops  and  educates  patrons  for 


214  The  Romance  of  Life  Insurance. 

ordinary  insurance.  The  leading  industrial  companies  have 
all  established  ordinary  branches,  where  the  thriftier  classes 
can  obtain  insurance  upon  the  lower  rates  possible  on  the 
annual,  semi-annual  or  quarterly  plans  when  applied  for  in 
sums  of  $1,000  or  more.  In  addition  to  this,  the  companies 
have  established  intermediate  departments,  where  $500 
policies  are  obtainable  on  annual,  semi-annual  or  quarterly 
basis,  at  premiums  lower  than  industrial  rates,  though 
higher  than  ordinary  rates. 

"  Yes,"  admit  critics  of  the  school  of  Louis  D.  Brandeis, 
whose  savings-banks  scheme  in  Massachusetts  will  be 
referred  to  later,  "  industrial  insurance  has  done  much  for 
the  home  and  the  nation,  but  it  has  done  so  at  excessive  cost. 
The  system  is  good,  but  it  costs  too  much." 

If  the  system  is  good,  and  it  is  generally  admitted  to  be 
good,  both  in  the  consensus  of  authoritative  opinion  and  in 
success  that  could  only  be  achieved  by  supplying  a  real  want, 
it  can  only  be  claimed  to  cost  too  much  in  the  sense  that  it 
might  be  supplied  at  lower  cost.  An  analysis  of  the  char- 
acter of  industrial  insurance  would  seem  to  prohibit  the 
elimination  of  the  expensive  services  of  the  agent,  or  of  the 
wastefulness  of  the  system  to  any  radical  degree.  This  point 
was  brought  out  eloquently  if  unconsciously  by  the  Arm- 
strong investigating  committee  of  New  York,  when  in  an 
attempt  to  take  a  back-handed  slap  at  the  industrial  insur- 
ance business,  without  the  facts  to  strike  out  straight  from 
the  shoulder,  the  committee  reported : 

In  fine,  the  industrial  department  furnishes  insurance  at  twice 
the  normal  cost  to  those  least  able  to  pay  for  it;  a  large  proportion, 
if  not  the  greater  number  of  the  insured,  permitting  their  policies 
to  lapse,  receive  no  money  return  for  their  payments.  Success  is 
made  possible  by  thorough  organization  on  a  large  scale  and  by 
the  employment  of  an  army  of  underpaid  solicitors  and  clerks ;  and 


Insuring  the  Masses.  215 

from  margins  small  in  individual  cases,  but  large  in  the  aggregate, 
enormous  profits  have  been  realized  upon  insignificant  investment. 

Eliminating  the  gratuitous  truism  that  the  small  pur- 
chaser pays  for  every  commodity  the  highest  price,  through 
inability  to  buy  in  bulk  or  volume,  here  is  a  statement  that 
reduces  to  an  admission  that  success  in  the  industrial  insur- 
ance business  is  made  possible  for  the  largest  company  in 
the  business  through  organization,  where  economy  is  forced 
to  a  point  to  bring  out  criticism  in  behalf  of  the  agents  and 
clerks  of  the  company.  With  the  further  admission  that 
the  margins  are  small  in  individual  cases  is  hitched  on  the 
statement  that  enormous  profits  have  been  realized  upon 
insignificant  investment. 

Haley  Fiske,  vice-president  of  the  Metropolitan  Life 
Insurance  Company,  the  company  under  discussion  in  this 
statement  of  the  Armstrong  committee,  treated  most  frankly 
this  phase  of  industrial  insurance  in  an  address  delivered  at 
a  meeting  of  the  National  Civic  Federation : 

Early  in  the  career  of  the  Metropolitan  it  set  itself  a  limit,  and 
had  that  limit  fixed  by  an  act  of  the  legislature,  that  no  payment  to 
stockholders  shall  be  in  excess  of  $140,000  a  year,  which  is  seven 
per  cent  on  the  capital,  which  is  four  per  cent  on  the  investment  of 
capital  of  those  who  have  bought  stock  later;  which  is  twenty-eight 
per  cent  on  the  original  capital.  But  the  original  capital  was  only 
$500,000;  it  went  out  of  sight;  there  was  a  prospect  of  its  all 
becoming  lost  unless  we  could  do  something  for  the  stockholders 
to  get  them  to  pay  more,  to  induce  them  to  pay  in  more  money. 
The  proposition  to  capitalize  the  surplus  up  to  $2,000,000  was  made 
to  them,  and  the  question  whether  that  was  right  or  wrong  came 
up  before  Grover  Cleveland,  the  then  Governor  of  the  State,  and 
he  ruled  that  that  was  not  an  excessive  amount  to  pay  over  to  the 
men  who  run  the  risk  and  put  their  money  in  there ;  and  he  signed 
the  amendment  to  the  charter. 

Now,  when  anybody  tells  you  they  get  twenty-eight  per  cent, 
don't  forget  that  whatever  it  is,  it  is  only  $140,000;  it  can  not  be 


216  The  Romance  of  Life  Insurance. 

over  that.  Now  what  is  $140,000  per  annum  on  $60,000,000  of  annual 
premium  income?  It  is  not  too  much  money  for  managing  a  busi- 
ness like  that.  -  Well,  if  it  is,  the  answer  is^  pat,  that  the  $140,000 
is  not  taken  out  of  the  profits  of  doing  industrial  business.  Every 
cent  of  it  is  earned  by  the  stockholders,  out  of  their  investments. 
The  interest  earned  upon  the  reserve  above,  the  interest  by  statute 
required,  and  the  interest  earned  on  the  capital  and  surplus  much 
more  than  pay,  not  only  the  dividends  to  stockholders,  but  the  offi- 
cers' salaries,  so  that  not  any  dividends  to  stockholders,  nor  any 
salaries  to  officers  are  paid  out  of  the  profits  of  the  business.  Nor 
has  there  been  for  many  years  any  part  of  it  added  to  the  surplus 
out  of  profits.  If  you  will  take  the  last  ten  years  of  the  Metro- 
politan Life,  the  total  additions  to  surplus  amount  to  less  than  the 
earnings  from  interest  above  the  statutory  amount  and  the  earnings 
from  interest  on  the  capital  and  surplus  which  belong  to  the  stock- 
holders in  the  last  event.  So  that  the  profits  of  the  business  have 
not  contributed  either  to  the  stockholders,  the  officers  or  the  surplus 
of  the  company. 

It  thus  becomes  apparent,  first,  that  as  life  insurance 
must  be  done  on  a  margin  of  safety,  there  must  have  been 
profits  earned  on  the  business,  which  went  somewhere ;  and 
secondly,  that  beyond  these  earnings  there  must  be  inherent 
reasons  why  industrial  life  insurance  should  cost  greatly  in 
excess  of  ordinary  life  insurance.  Mr.  Fiske  himself,  later 
on  in  his  speech,  answered  the  first  of  these  conclusions, 
showing  how  the  Metropolitan  has  paid  back  in  gratuitous 
dividends  to  the  industrial  policyholders  fifteen  millions  of 
dollars  not  promised  in  these  nonparticipating  contracts. 
"  This  act,"  continued  Mr.  Fiske,  "  can  not  be  said  to  be  a 
gratuity.  It  is  an  act  of  justice,  it  is  a  reduction  of  pre- 
mium. It  is  the  only  way  in  this  business  that  we  could 
reduce  the  premiums.  To  reduce  the  premiums  at  the  out- 
set is  to  invite  bankruptcy." 

Similar  dividend  returns  have  been  made  by  the  other 
two  leading  industrial  companies,  the  Prudential  Insurance 


Insuring  the  Masses.  217 

Company  and  the  John  Hancock  Mutual.  These  three  com- 
panies represent  ninety-five  per  cent  of  the  total  industrial 
insurance  of  America. 

Taking  up  the  second  conclusion,  that  there  must  be 
inherent  reasons  in  the  industrial  system  for  its  increased 
costs,  the  reasons  are  found,  first,  in  increased  mortality  of 
the  industrial  classes ;  second,  in  the  exigencies  of  a  business 
that  can  only  be  conducted  in  successful  volume  by  the 
employment  of  agents  to  solicit  the  business  and  collect  it 
weekly  from  the  houses  of  the  insured;  and  third,  in  the 
waste  produced  by  lapses. 

As  regards  the  mortality  of  industrial  classes,  a  scientific 
mortality  table  built  from  the  experience  of  the  Metropolitan 
Life,  embracing  an  observation  of  twelve  millions  of  insured 
lives,  indicates  the  industrial  mortality  to  be  at  the  different 
ages  from  about  one  hundred  and  forty  to  two  hundred  per 
cent  of  the  tabular  mortality  rates  safely  assumed  in  the 
ordinary  branch  of  old-line  life  insurance.  At  age  thirty- 
five,  popularly  assumed  as  an  average  age,  the  industrial 
mortality  showed  one  hundred  and  eighty-five  per  cent  of 
the  normal  tabular  death  rate  of  ordinary  insurance. 

A  more  recent  compilation  of  industrial  mortality  by  the 
same  company,  based  on  actual  experience  for  the  ten  years 
prior  to  1907,  shows  marked  improvement,  the  mortality  at 
age  thirty-five  being  about  one  hundred  and  fifty-five  per 
cent  of  the  American  experience  table  now  standard  for 
old-line  ordinary  insurance.  The  industrial  companies  are 
giving  the  benefit  of  improvement  in  mortality  to  their 
patrons  in  adopting  new  tables  allowing  increased  benefits. 

Increased  mortality  means  increased  cost,  and  while  no 
man  dies  more  or  less  than  once,  yet  in  the  averages  of  life 
insurance,  the  deaths  per  one  thousand  experienced  at  the 

13 


218  The  Romance  of  Life  Insurance. 

different  ages  determine  the  cost  of  the  insurance  when  con- 
sidered separately  from  the  items  of  expense  and  interest. 
The  "  why  "  of  this  larger  industrial  mortality  is  due  in  part 
to  the  relatively  higher  death  rates  experienced  in  cities. 
Industrial  risks  are  essentially  urban  risks,  as  the  system  of 
industrial  insurance  can  not  be  profitably  carried  to  the 
agricultural  sections  of  the  country  or  sparsely  settled  vil- 
lages and  smaller  towns.  It  is  a  business  obtained  and  con- 
tinued in  force  by  weekly  visits  from  an  agent,  and  the  need 
of  concentration  to  make  these  visits  profitable  to  the  agent 
upon  the  narrow  margins  of  the  business  have  limited 
agency  activities  to  the  cities,  even  apart  from  the  fact  that 
the  business,  to  be  profitable,  calls  for  supervising  the  work 
of  the  agent  that  prohibits  small  detached  agencies  in  widely 
scattered  territory. 

Another  fact  that  contributes  to  the  increased  mortality 
of  the  industrial  classes  is  the  strain  under  which  they  live 
and  toil  for  a  not  over-abundant  nourishment  amid  inferior 
physical  surroundings.  Then,  too,  the  working  people  are 
notorious  for  their  disregard  of  themselves  and  of  the  rules 
of  diet  and  health  which  are  more  or  less  rigidly  followed  in 
the  upper  classes. 

While  on  the  topic  of  industrial  mortality,  a  reference  to 
insurance  of  children  and  the  mortality  among  children 
insured  under  the  industrial  plan  is  not  out  of  place.  The 
mortality  of  insured  children  is  shown,  both  from  the  rec- 
ords of  the  American  companies  for  the  United  States  and 
from  the  records  of  the  Prudential  for  Great  Britain,  to  be 
less  than  the  general  child  mortality  of  the  whole  population. 
This  surely  supplies  all  the  refutation  needed  to  the  well- 
meaning  but  misunderstanding  opposition  to  child  insur- 
ance on  the  grounds  that  it  imperiled  child  life.  Were  this  a 
fact,  it  would  make  the  business  a  commercial  impossibility, 


Insuring  the  Masses.  219 

since  no  industrial  life  insurance  could  safely  undertake  a 
business  where  it  could  be  viciously  selected  against  by 
murderous  parents  anxious  to  realize  financially  through  the 
sacrifice  of  the  child's  life  either  through  murder  or  studied 
neglect. 

The  amount  of  insurance  is  rigidly  limited  upon  the  lives 
of  children,  and  the  limit  increased  with  age,  so  that  at  no 
time  is  there  more  than  a  modest  funeral  benefit  at  risk  upon 
the  child's  life.  This  is  all  the  parent  wants,  all  the  insur- 
ance company  would  care  to  grant,  and  all  the  law  in  certain 
States  permits.  While  it  is  but  a  small  sum,  it  covers  a  need 
that  multiplies  the  value  of  a  dollar  in  securing  a  decent 
burial  of  a  fond  child  without  impoverishing  the  resources 
of  the  whole  family.  Poverty  subtracts  nothing  from  par- 
ental love,  and  possibly  adds  much  to  it,  much  more  than 
could  be  appreciated  by  the  hypercritical  rich,  who,  mis- 
understanding the  poor,  underestimate  and  undervalue  them. 

It  is  in  the  assurance  of  the  children  and  of  the  aged, 
beyond  age  sixty  and  up  to  seventy,  that  industrial  insurance 
becomes  "  family  "  insurance  and  covers  every  member  of 
the  household.  Death  is  no  respecter  of  individuals,  and  an 
attempt  to  encourage  a  thrifty  providence  of  the  working- 
man  to  provide  against  the  contingencies  of  death  falls  short 
of  completeness  if  it  would  exclude  any  member  of  the  fam- 
ily. The  English  government  postoffice  insurance  depart- 
ment later  realized  this  and  amended  their  original  proposi- 
tion to  exclude  all  children,  to  take  in  all  who  were  aged 
eight  or  more.  Insomuch  as  this  was  a  half-way  measure, 
it  has  served  as  an  admission  of  error  without  fully  cor- 
recting the  error  to  include'  all  members  of  the  family  in 
insurable  state  of  health  and  under  extreme  old  age. 

It  is  interesting  to  note  the  distribution  of  industrial 
policies  among  the  different  ages  as  compared  with  the  dis- 


220  The  Romance  of  Life  Insurance. 

tribution  of  population.     The  following  exhibit  brings  out 
with  fidelity  the  family  character  of  industrial  life  insurance : 

AGE  DISTRIBUTION. 

Percentage  of 

Percentage  of  policies  in 

Ages:  population.  force,  1904. 

I  to    4,  inclusive 9-57  9-57 

I  to    9,  inclusive 21.28  22.47 

I  to  14,  inclusive 31-94  34-66 

I  to  19,  inclusive 41.91  45-35 

5  to  17,  inclusive 28.42  31.65 

20  to  29,  inclusive 18.29  17.68 

30  to  39,  inclusive 13.88  12.83 

40  to  49,  inclusive 10.16  9.96 

50  to  59,  inclusive 6.80  8.06 

60  to  69,  inclusive 4.08  4.86 

i  to  69,  inclusive 95-12  98.74 

This  table  shows  no  undue  excess  in  the  earlier  years, 
and  in  fact,  a  remarkable  correlation  throughout  with  the 
general  population  statistics. 

Sentiment  against  child  insurance  was  but  one  of  the 
many  prejudices  which  industrial  insurance  has  had  to 
combat.  More  than  once  has  legislation  against  child 
insurance  in  England  been  defeated  in  Parliament  after 
legislative  investigation.  There  have  likewise  been  agita- 
tions and  investigations  against  child  insurance  in  various 
places  in  the  United  States,  including  Pennsylvania,  New 
York,  Massachusetts,  Tennessee,  Ohio,  Missouri,  New 
Hampshire,  California,  Connecticut,  Illinois,  Michigan, 
Georgia,  Delaware,  Indiana,  Utah,  North  Carolina  and  Wis- 
consin. In  every  instance  have  these  measures  been 
defeated.  In  Wisconsin  the  Bishop  of  Fond  du  Lac  came 
voluntarily  and  unsolicited  to  the  defense  of  child  insurance 
when  this  feature  of  industrial  insurance  was  attacked. 
Colorado,  the  only  State  to  prohibit  child  insurance,  did  so 


Insuring  the  Masses.  221 

at  a  time  when  only  one  industrial  insurance  company  was 
in  a  small  way  working  in  Colorado.  The  prohibition  was 
not  on  the  grounds  of  unfavorable  experience,  but  in  theoret- 
ical anticipation  of  abuses  that  have  never  existed.  It  is  to 
be  noted  that  even  in  this  instance  E.  E.  Rittenhouse,  when 
Insurance  Commissioner  of  Colorado,  made  vigorous  recom- 
mendations for  repealing  this  unwarranted  prohibition. 

When  the  subject  of  child-insurance  prohibition  was  up 
in  Pennsylvania,  Doctor  Walk,  at  the  time  head  of  the 
Philadelphia  organized  charities,  appeared  before  the  Penn- 
sylvania Legislature  to  state: 

I  have  never  known  of  an  instance  in  which  there  was  any  evi- 
dence that  children  had  been  neglected  or  murdered  for  the  purpose 
of  securing  the  insurance  upon  their  lives.  Indeed,  my  own  obser- 
vation is  that  among  the  poorer  classes  parents  are  very  fond  of 
their  children  and  are  much  more  with  them  than  in  other  social 
grades. 

Dismissing  the  subject  of  mortality,  which,  though  show- 
ing for  the  infant  lives  a  mortality  lower  than  the  general 
population,  none  the  less  produces  death  rates  greatly  in 
excess  of  those  experienced  under  ordinary  life-insurance 
policies,  another  factor  of  increased  cost  appears  in  the 
expensive  industrial  scheme  of  carrying  insurance  to  the 
very  threshold  of  the  working  people.  To  do  this  requires 
the  employment  of  agents,  who  to  collect  a  year's  premiums 
may  be  obliged  to  make  fifty-two  weekly  calls.  The  pre- 
miums are  collected  in  small  amount,  the  average  premium 
being  a  little  over  ten  cents  a  week.  An  agent's  route  is 
usually  made  up  of  eight  or  nine  hundred  policies,  amount- 
ing in  premiums  to  from  $80  to  $90.  There  is,  of  course, 
an  enormous  expense  in  handling  a  large  volume  of  small 
items,  as  compared  with  getting  the  same  volume  of  pre- 
miums upon  a  few  items  paid  direct  by  check,  as  is  the 


222  The  Romance  of  Life  Insurance. 

case  in  the  larger  policies  of  ordinary  life  insurance,  where 
the  premiums  are  payable  annually,  semi-annually  or  quar- 
terly. 

Many  are  the  schemes  that  have  been  devised  to  sub- 
stitute some  other  collecting  system  for  the  weekly  agency 
call,  but  from  the  very  inception  of  the  business  with  the 
London  Prudential  the  weekly  call  has  been  the  only  suc- 
cessful plan.  Monthly  schemes  have  been  attempted  with 
enthusiasm,  to  go  down  successively  in  dismal  failure.  Col- 
lected weekly  the  small  premium  is  but  the  price  of  a  fore- 
gone extravagance  or  indulgence.  Collected  monthly,  the 
premium  is  a  burden  that  remains  after  the  small  extrav- 
agance has  been  indulged.  If  a  policyholder  is  the  excep- 
tional case  who  will  save  a  monthly  premium,  he  will  be 
encouraged  to  take  a  quarterly  payment  upon  the  interme- 
diate $500  plan,  or  even  upon  the  ordinary  plan  if  the  grade 
of  the  risk  will  make  the  case  acceptable  for  ordinary  insur- 
ance. After  all  due  consideration,  there  appears  no  possible 
way  in  which  the  weekly  call  or  the  work  of  the  agent  can 
be  eliminated  in  industrial  life  insurance  without  practically 
eliminating  the  system  itself. 

Expenses  in  industrial  insurance  are  large,  but  these 
expenses  pay  not  only  for  the  work  of  the  agent  in  col- 
lecting from  the  insured,  but  also  remunerate  him  for  sup- 
plying risks  to  take  the  place  of  lapsing  and  terminating 
members,  and  in  addition  cover  the  missionary  work  of 
getting  new  policyholders,  as  the  business  of  industrial  life 
insurance  continues  to  show  each  year  tremendous  gains 
in  membership.  If  industrial  insurance  can  be  produced 
and  given  the  workingman  at  lower  cost,  or  at  a  cost  that 
would  eliminate  part  if  not  all  of  the  present  expenses  of 
the  business  as  conducted  through  agency  organizations, 
it  is  right  and  proper  that  this  condition  should  be  brought 


Insuring  the  Masses.  223 

about.  If  the  condition  can  be  brought  about  it  sounds  the 
doom  of  industrial  insurance  as  at  present  constituted.  If 
industrial  insurance  survives  and  will  survive,  despite  the 
expense  necessary  to  conduct  a  business  of  this  character 
under  agency  systems  that  bring  the  insurance  straight  to 
the  front  door,  it  is  proof  sufficient  that  the  system  supplies 
that  which  can  not  or  will  not  be  purchased  or  obtained  in 
any  better  or  cheaper  form. 

Recently,  through  the  vigorous  efforts  of  Louis  D. 
Brandeis,  of  Boston,  Massachusetts  has  adopted  a  law 
permitting  the  savings  bank  to  establish  departments  for  con- 
ducting industrial  insurance.  Unfortunately  and  unneces- 
sarily, the  promoters  of  the  savings-bank  idea  of  supplying 
industrial  insurance  without  the  intermediary  services  and 
expenses  of  the  agent,  have  not  relied  solely  upon  the  merits 
of  their  proposition  to  win  support,  but  have  supplemented 
their  theoretically  excellent  plan  with  gratuitous  attacks 
upon  the  agency  system  of  conducting  life  insurance. 

Mr.  Brandeis'  Massachusetts  experiment  brings  us  back 
nearly  a  half  century  to  the  historic  opposition  of  Mr. 
Gladstone,  with  his  postoffice  life  insurance,  to  the  early 
operations  of  the  Prudential  of  London.  There  is  no  pos- 
sible objection  or  disadvantage  to  the  people  of  England 
having  both  systems  at  their  disposal,  but  when  it  is  recalled 
that  the  Prudential  of  London  issues  one  thousand  industrial 
policies  to  one  of  the  postoffice  department,  and  that  the 
fifteen  thousand  policies  in  force  by  the  postoffice  depart- 
ment are  largely  on  the  lives  of  postal  employees,  it  would 
appear  that  if  selection  must  be  made  between  one  or  the 
other  of  the  systems,  the  public  would  be  bettered  by  almost 
a  thousand  to  one  by  the  continuance  of  the  Prudential 
system,  expensive  as  it  is,  and  the  discontinuance  of  the 
postoffice  system,  economical  as  it  might  be  but  is  not.  As 


224  The  Romance  of  Life  Insurance. 

stated,  however,  there  is  no  occasion  for  debating  this 
question,  and  it  is  a  question  not  brought  forth  by  the  cor- 
porations of  America  conducting  industrial  insurance, 
against  Mr.  Brandeis  and  the  savings  bank  "  over-the- 
counter  "  idea  now  being  tried  in  Massachusetts. 

It  is  a  safe  prophecy  that  not  only  will  corporation 
industrial  life  insurance  reach  the  people  as  the  savings 
banks  will  never  be  able  to  do,  but  that  the  soundness  and 
economy  of  the  corporation  policy  will  make  it  appeal  on 
these  points  alone  to  a  discriminating  public.  This  is  no 
reflection  upon  the  English  postoffice  insurance  scheme,  or 
the  Massachusetts  savings-bank  insurance,  beyond  the  fact 
that  the  business  of  life  insurance,  and  particularly  industrial 
life  insurance,  is  an  involved  business,  and  that  with  all  its 
handicap  of  expense  necessary  to  bring  the  benefits  of  indus- 
trial life  insurance  to  the  people,  superior  knowledge,  ability 
and  facilities  for  conducting  a  business  gives  offsetting 
advantages  to  the  large  and  well-established  corporation 
over  experimental  nonagency  schemes. 

If  the  industrial  people  will  apply  for  life  insurance 
direct,  schemes  could  be  worked  out  by  the  industrial  insur- 
ance companies  themselves,  at  least  as  well  as  by  the  savings 
banks,  to  reduce  the  cost,  not  only  in  industrial  insurance  but 
in  ordinary  insurance,  where  the  agent  as  a  necessary 
worker  is  worthy  of  his  hire  and  must  receive  it. 

In  summing  up  the  expense  of  the  system  and  the  won- 
ders of  an  organization  that  has  placed  in  such  industrial 
cities  as  Philadelphia,  Newark  or  Cohoes,  as  many  or  more 
policies  than  there  are  living  inhabitants  of  the  town,  account 
must  be  taken  of  the  assistant  superintendent,  who  super- 
vises a  corps  of  five  or  more  agents,  working  on  the  routes 
of  a  retiring  agent  and  starting  a  new  man  into  the  business, 
either  collecting  with  him  on  old  policies  or  canvassing  with 


Insuring  the  Masses.  225 

him  for  new;  and  above  the  assistant  superintendents,  the 
superintendent,  who  is  the  final  authority  in  the  district  over 
which  he  presides.  In  the  large  cities  there  are  two  or  more 
superintendents  handling  separate  districts,  each  superin- 
tendent having  possibly  ten  or  even  more  assistant  superin- 
tendents under  his  control,  and  each  assistant  superintendent 
with  a  corps  of  five  or  six  agents.  The  routes  are  divided  to 
concentrate  the  work  of  the  agent  in  the  smallest  territory 
possible,  and  it  is  part  of  the  duties  of  the  assistant  superin- 
tendent in  charge  of  the  adjoining  agencies  to  see  that  the 
territory  is  systematically  and  thoroughly  covered.  The 
superintendent  supervises  in  turn  the  work  of  the  assistants 
to  the  end  that  his  entire  district  is  actively  solicited,  carry- 
ing home  to  the  industrial  population  the  needs  and  usages 
of  life  insurance. 

With  one  large  company  doing  a  representative  business, 
the  average  salary,  in  1905,  of  the  superintendent  was  $43 
a  week,  that  of  the  assistant  $20,  that  of  the  agent  $12.  By 
further  concentrating  the  work  of  the  agent,  this  company 
has  since  increased  the  agent's  remuneration  about  twenty- 
five  per  cent  and  at  the  same  time  decreased  the  total 
expense  ratio  of  the  company  eight  per  cent.  With  this 
company  the  home-office  salaries  amounted  to  one-half  of 
one  per  cent  of  the  income.  At  the  home  office  the  company 
starts  in  its  women  clerks  at  $6  a  week,  its  men  at  $8,  and 
gives  them  an  increase  to  a  maximum  of  $12  for  the  women 
and  $20  for  the  men  clerks.  Each  superintendent  of  agen- 
cies, who  is  separately  charged  with  an  average  of  fifteen 
hundred  field  men  to  supervise  from  the  home  office  and  the 
field,  receives  on  the  average  about  $5,000  a  year.  Con- 
tinuation in  service  of  assistants  and  agents  and  other 
employees  of  the  company  means  persistence  of  the  busi- 
ness, and  its  economical  handling.  It  appears,  therefore, 


226  The  Romance  of  Life  Insurance. 

that  any  considerable  reduction  of  expense  in  industrial 
insurance  must  come  from  a  greater  persistence  of  the  busi- 
ness, which  brings  us  to  the  topic  of  lapse,  a  source  of  large 
waste,  whose  curtailment  in  even  a  small  part  would  mean 
great  saving. 

Strangely  enough,  it  has  been  a  popular  error  that  lapses 
were  a  source  of  large  profit  to  the  industrial  companies. 
This  has  aroused  more  or  less  criticism,  from  the  natural 
deduction  that  it  was  a  profit  achieved  by  the  policyholder's 
loss.  During  the  Armstrong  investigation  the  vice-president 
of  one  of  the  large  companies  testified  that  he  probably 
understated  the  lapse  loss  when  he  said  that  if  it  was  not 
for  this  loss  the  benefits  of  industrial  life  insurance  could  be 
increased  twenty-five  per  cent.  By  the  lapse  loss  in  life 
insurance  the  new  business  produced  costs  with  the  older 
companies  twice  the  commission  contracted  to  pay  the  agent, 
and  with  the  younger  industrial  companies  this  ratio  is  even 
greater. 

The  average  premium  was  twelve  cents  upon  the  policies 
canceled  during  a  recent  year  by  one  large  industrial  com- 
pany, and  the  average  time  for  which  the  premium  was  paid 
was  a  trifle  over  six  weeks,  giving  an  average  paid  on  the 
policies  lapsed  during  that  year  of  seventy-two  cents.  The 
average  initial  cost  of  new  business  during  the  year,  includ- 
ing commissions,  collection,  medical  examination,  inspection 
and  other  expenses,  was  $2.07  per  policy,  without  regard  to 
the  value  of  the  insurance  given  to  the  lapsing  member. 
Deducting  from  this  $2.07  the  average  premium  received  of 
seventy-two  cents,  the  actual  loss  to  the  company  averaged 
$1.35  for  each  lapsed  policy.  The  average  cost  of  carrying 
the  policy  during  the  average  time  in  force  was  fifty-one 
cents.  Deducting  this  from  the  average  paid  by  the  policy- 
holder  of  seventy-two  cents  shows  the  net  loss  to  the  policy- 


Insuring  the  Masses.  227 

holder  of  twenty-one  cents,  while  the  loss  to  the  company 
was  $1.35  plus  the  cost  of  carrying  the  insurance,  making  a 
total  loss  to  the  company  of  $1.86  on  each  lapse. 

During  the  industrial  insurance  investigation  in  Massa- 
chusetts the  opposition  counsel  introduced  as  a  witness  a 
woman  with  fifteen  lapsed  policies  issued  upon  five  members 
of  her  family,  to  show  how  the  company  was  enriched  at  the 
expense  of  the  lapsing  policyholder.  Much  to  the  chagrin 
of  the  counsel,  the  insurance  expert  proved  to  the  contrary. 
This  woman  took  advantage  of  the  fact  that  industrial  poli- 
cies carry  four  weeks  of  grace,  so  that  a  new  entrant  may 
take  out  a  policy,  involve  the  company  in  the  large  initial 
expense  of  having  the  risk  examined  and  issued,  pay  one 
premium  and  have  the  insurance  carried  for  five  weeks  by 
taking  advantage  of  the  four  weeks  of  grace.  This  is  what 
this  witness  had  done.  The  total  amount  of  premiums  she 
paid  on  the  fifteen  policies  was  $1.90,  showing  her  family 
to  have  received  sixty  weeks'  free  insurance,  making  the 
insurance  exceedingly  cheap,  and  forcing  upon  the  company 
not  only  the  initial  expense  of  issuing  these  policies  but  the 
burden  of  carrying  the  insurance  risk. 

When  the  policyholder  persists  for  some  time  and  lapses 
later,  there  is  a  profit  to  the  credit  of  the  policy,  but  at  such 
time  the  policyholder  is  allowed  a  surrender  value.  In 
industrial  insurance  this  surrender  value  is  allowed  at  latest 
after  five  years.  Five  years  seems  as  early  a  period  as  is 
just  for  compelling  statutory  surrender  values  in  a  business 
carrying  such  large  initial  expense  and  suffering  so  heavily 
through  the  discontinuance  of  insurance.  But  under  the 
new  New  York  laws  the  period  has  been  fixed  at  three  years 
—  at  which  time  it  is  doubtful  if  the  policy  will  have  saved 
and  accumulated  to  its  credit  the  amount  of  the  legal 
reserve. 


228  The  Romance  of  Life  Insurance. 

Industrial  lapse  losses  differ  from  lapse  losses  in  ordi- 
nary insurance,  since,  in  the  latter  case,  the  man  usually 
pays  an  annual  premium,  and  never  less  than  a  quarterly 
premium,  which  would  represent  thirteen  weeks'  insurance. 
In  industrial  insurance  he  needs  pay  but  one  premium,  and 
the  greatest  volume  of  lapses  occurs  in  the  payment  of  the 
first  few  renewal  premiums.  Industrial  insurance  has  fifty- 
two  premium  dates  in  the  year,  each  offering  chance  for 
lapse.  The  company  with  probably  the  lowest  lapse  ratio 
found  in  a  recent  investigation  that  thirty-eight  per  cent  of 
its  industrial  business  issued  in  a  given  year  lapsed  in  three 
months,  and  sixty  per  cent  in  a  year.  After  three  years  the 
industrial  business  is  quite  persistent,  comparing  favorably 
with  annual  premium  ordinary  business. 

Everything  possible  is  done  to  reduce  lapses.  The  agent 
who  is  charged  direct  with  the  lapsed  premium  finds  it  as 
profitable  to  keep  a  policy  on  the  books  as  it  is  to  rewrite  a 
new  one  of  the  same  premium.  This  is  the  only  branch  of 
life  insurance  in  which  this  condition  exists.  In  ordinary 
insurance  and  other  branches  of  life  insurance,  the  lapse  is 
not  charged  back  against  the  agent.  Moreover  it  is  one  of 
the  required  duties  of  the  assistant  superintendent  to  visit 
every  member  reported  for  lapse,  and  do  his  utmost  to  have 
the  policy  reinstated. 

The  ways  of  the  poorer  people,  however,  are  not  always 
provident  ones,  nor  can  the  poor  always  be  provident,  in 
the  sense  of  the  rich.  They  buy  at  retail,  and  pay  a  heavy 
toll  as  compared  with  supplies  and  commodities  bought  and 
paid  for  in  large  amounts.  Small  purchases  of  food  or  coal 
carry  a  heavy  tariff  as  compared  with  the  purchase  by  the 
barrel  or  the  ton.  Instalment-bought  furniture,  or  home- 
steads, carry  the  costs  and  penalties  of  expensively  supplied 
needs  that  could  not  be  supplied  at  all  under  a  system  which 


Insuring  the  Masses.  229 

would  call  for  a  larger  immediate  expenditure  to  purchase 
at  relatively  lower  cost. 

Largely  to  the  poor  man's  spirit  of  improvidence  the 
lapse  is  chargeable,  just  as  it  is  chargeable  to  this  spirit  that 
the  industrial  worker  must  have  insurance  providence  and 
thrift  taught  to  him  and  brought  to  him  by  the  agent  or  else 
he  will  have  none  of  it.  Nor  does  the  industrial  applicant  in 
this  respect  differ  except  in  degree  from  the  more  affluent 
classes  constituting  the  patronage  of  the  ordinary  life-insur- 
ance company. 

With  all  its  expense  of  organization,  with  all  its  waste 
of  lapse,  industrial  life  insurance  performs  a  mission  not 
covered  by  any  other  institution  in  the  world's  affairs. 

If  the  industrial  public  can  become  educated  and  will 
become  educated  by  other  methods  than  compulsion,  to  pat- 
ronize industrial  life  insurance  without  the  intermediary  of 
the  agent  and  without  the  drain  of  the  lapse,  thousands  and 
millions  can  be  saved  the  industrial  classes.  But  will  they  do 
this,  short  of  the  German  system  of  compulsion  ?  It  appears 
not,  and  at  the  thought  "  compulsion  "  American  individual- 
ism reacts  with  an  "  I'll  have  none  of  it."  In  the  meantime 
and  all  the  time,  the  industrial  agent  goes  his  way  and  his 
work  goes  on. 

Industrial  insurance  confessedly  falls  short  of  the  ideal, 
but  in  clinging  to  the  practical,  it  serves  a  mission  of  use- 
fulness in  freeing  the  masses  from  the  enslaving  terror  of 
pauper  burial.  Spread  out  over  the  world  to-day,  wherever 
a  large  disaster  occurs,  the  industrial  companies  can  reckon 
a  quota  of  claimants  from  families  of  some  of  the  unfor- 
tunate victims.  One  industrial  company  alone  had  twenty- 
three  industrial  policyholders  lose  their  lives  in  the  Iroquois 
fire,  nine  in  the  dock  fire  of  the  North  German  Lloyd  at 
Hoboken,  212  persons  insured  under  336  policies  in  the 


230  The  Romance  of  Life  Insurance. 

Slocum  disaster.  Another  and  very  much  smaller  industrial 
company  paid  out  $60,000  in  policies  averaging  less  than 
$100  upon  claims  arising  from  the  Galveston  disaster. 

Less  dramatic,  but  with  oft-repeated  force,  goes  on  the 
mission  of  industrial  insurance  with  the  claims  it  pays  in 
natural  order  throughout  the  years.  An  average  of  441 
claims  paid  each  day  during  the  year,  being  one  for  every 
sixty-five  seconds  of  each  business  day  of  eight  hours,  is  the 
story  of  the  operation  of  the  largest  industrial  company, 
which  includes  a  large  volume  of  ordinary  and  intermediate 
business,  though  relatively  small  as  compared  with  the 
industrial.  Averaging  for  amounts,  the  figures  for  this 
company  become  even  more  impressive  when  it  is  considered 
that  it  carried  upon  the  same  basis  a  payment  of  $128.48  a 
minute  to  claimants,  for  every  minute  of  business  hours 
during  the  year.  The  industrial  life-insurance  companies 
collectively  pay  over  one  thousand  claims  per  day,  and  in 
most  instances  the  money  is  paid  within  a  few  hours  after 
the  claim  papers  are  made  up.  To  these  figures  are  to  be 
added  the  multiplied  value  that  attends  ready  money  at  a 
time  of  urgent  need,  when  the  value  of  a  dollar  bill  assumes 
a  proportion  that  more  than  half  the  world  has  never  learned 
to  give  it. 

Again  is  asked,  and  this  time  direct  to  industrial  insur- 
ance: 

"  In  God's  name,  who  are  you  ?  " 

And  this  the  reply: 

"  A  brother  of  the  brotherhood  of  man,  with  faults  and 
virtues,  with  strength  and  weakness,  but  withal  a  brother 
serving  and  wanting  to  serve." 


CHARLES  JEROME  EDWARDS. 


THK  LIFE-INSURANCE  AMBASSADOR. 

oung  man/'  said  a  to  a  life-insur- 

ance  representative  thk  his  mission, 

"  you  can't  talk  life  insurar^  time  is  too 
valuable." 

"  Is  it  worth  T;  lired  the 

agent,  as  he  plea  ling,  "  I 

•  id  like  to  mak  uable  to  us 


rl    o  Jn^bigsiS  (yji-j  JjoY  w»H  )o  ISQB 
en  he,a  time?  the 

el?  ?•  - 


am  interested."    Upon  leaving,  the 

of  goodly  size,  to  show  how  well  the  banker's  interest 
rained. 

the  modern  life-insurance   representative  comes 
office,  or  talks  insurance  to  him  elsewhere,  1 

of  the  value  of  time  as  the  "  pr 
^eciation  are  the  agent's  stock  in  If  he 

me  or  fails  in  appreciating  i 
ic,  he  falls  short  of  achic 
Tative. 


the  r< 
the  i. 
LSSU  ranee 


CHARLES  JEROME  EDWARDS,  distinguished  agency  man- 
ager of  New  York  city,  President  of  the  National  Associa- 
tion of  Life  Underwriters  (1909),  and  able  champion  of 
the  agent  and  his  cause. 


CHARLES  J 


CHAPTER   XIII. 
THE  LIFE-INSURANCE  AMBASSADOR. 

"OTOP,  young  man,"  said  a  busy  banker  to  a  life-insur- 
O  ance  representative  the  moment  he  stated  his  mission, 
"  you  can't  talk  life  insurance  to  me  here.  My  time  is  too 
valuable." 

"  Is  it  worth  more  than  $i  a  minute  ?  "  inquired  the 
agent,  as  he  pleasantly  laid  down  a  ten-dollar  bill,  adding,  "  I 
would  like  to  make  the  next  ten  minutes  valuable  to  us 
both." 

And  he  did. 

When  he  arose  to  go,  well  within  the  allotted  time,  the 
banker  shoved  his  bill  back  to  him  and  said,  "  Continue.  I 
am  interested."  Upon  leaving,  the  agent  carried  an  applica- 
tion of  goodly  size,  to  show  how  well  the  banker's  interest 
was  sustained. 

When  the  modern  life-insurance  representative  conies 
into  a  man's  office,  or  talks  insurance  to  him  elsewhere,  he  is 
as  appreciative  of  the  value  of  time  as  the  "  prospect." 
Time  and  appreciation  are  the  agent's  stock  in  trade.  If  he 
squanders  his  time  or  fails  in  appreciating  the  value  of  the 
other  man's  time,  he  falls  short  of  achieving  success  and  of 
making  his  work  remunerative. 

The  successful  agent  of  to-day  visits  the  office,  the 
recreation  place  or  the  home  with  the  assurance  that  the 
message  that  he  carries  is  one  that  needs  no  excuse  on 
personal  grounds.  It  is  the  message  that  introduces  the 
man,  rather  than  the  man  the  message. 

"  If  you  will  not  take  assurance  with  me  in  my  company, 

233 


234  The  Romance  of  Life  Insurance. 

tell  me  what  company  and  agent  you  do  prefer  and  I  will 
call  him  up  by  telephone  at  once,"  is  the  way  one  of  the 
most  successful  agency  managers  in  the  United  States  trains 
his  agents  to  carry  the  message,  "  because  your  family  needs 
the  protection,  and  a  policy  secured  in  some  other  company 
or  from  some  other  agent  is  worth  more  than  none  at  all." 
Just  as  the  agent's  visit  presents  opportunity  to  learn  of 
life  insurance  and  duties  grim  and  obligations  irksome, 
which  make  all  the  more  necessary  the  mission  of  the  agent, 
so  does  a  review  of  the  agent's  work  bring  with  it  a  better 
understanding  of  the  great  cause  of  which  he  comes  as 
ambassador.  With  brutal  frankness  the  Cleveland  Press 
thus  restates  the  message  which  the  agent  is  wont  to  deliver 
with  infinite  tact  and  appreciation : 

It  is  rather  a  grim  subject  —  this  idea  of  death.  It's  a  pleasant 
thing  to  forget.  Many  men  do  successfully  dodge  the  subject  all 
their  lives.  But  there  is  no  dodging  death  itself.  It  never  forgets. 
Rich  or  poor  —  mighty  or  lowly  —  no  matter. 

It's  a  fine  thing  to  live.  It  makes  a  married  man  proud  to  have 
a  home,  to  dress  his  wife,  to  give  his  children  educational  advan- 
tages and  to  keep  his  family  in  the  front  rank.  It  takes  money, 
yes  —  but  it's  fine  for  the  children,  delightful  for  the  wife,  satis- 
fying to  the  man.  But  — 

Some  day  your  friends  will  lay  a  lily  on  your  chest,  heap  the 
praise,  the  reverence,  the  kindly  tributes  that  should  have  been 
yours  through  life,  upon  what  is  left  of  you,  lay  you  away,  and 
proceed  to  forget  you. 

But  the  widow  won't  forget. 

The  orphans  won't  forget. 

When  you  go  to  the  cemetery  will  the  widow  go  to  the  poor- 
house? 

When  you  pass  into  the  unknown  will  your  orphans  pass  into  the 
asylum  ? 

There  is  no  time  to  decide  this  but  now. 

If  you  should  abandon  your  wife  while  alive  the  law  would  put 
you  in  jail.  Death  relieves  you  of  the  law,  but  not  of  responsibility! 


The  Life-insurance  Ambassador.  235 

Many  a  man  has  shut  the  door  of  opportunity  with  a 
"  Keep  out  life-insurance  agents  "  to  the  people  around  him. 
Behind  the  times  to-day,  to-morrow  this  man  will  be  an 
anachronism.  While  he  would  not  assume  the  absurd  posi- 
tion of  denying  the  benefit  of  life  insurance  in  the  abstract, 
his  instructions  to  his  subordinates  deny  opportunity  to  have 
life-insurance  knowledge  delivered  to  him  in  a  professional 
way  without  charge  for  services.  Strangely  enough,  this 
type  of  man  before  investing  or  buying  any  other  article  or 
commodity  searches  for  knowledge  in  the  most  painstaking 
way,  and  solicits  it  wherever  it  may  be  obtained. 

"  Yes,"  a  man  of  this  type  admits,  "  if  I  wanted  to  buy 
an  automobile,  for  example,  I  would  think  automobile, 
investigate  automobile,  and  talk  automobile  wherever  oppor- 
tunity afforded,  devoting  all  possible  time  to  becoming 
thoroughly  conversant  with  automobiles  and  eagerly  listen- 
ing to  the  claims  of  dealers  and  soliciting  the  advice  of  the 
expert.  The  difference  between  your  simile  and  an  automo- 
bile purchase  is  that  I  would  want  the  automobile,  and  don't 
want  the  life  insurance." 

Dealing  with  this  sort  of  man,  the  first  part  of  the  agent's 
work,  and  the  major  part,  is  to  bring  home  the  want,  and 
the  need  and  the  usefulness  of  life  insurance,  as  it  has 
escaped  the  attention  of  the  prospect. 

For  life  insurance,  for  some  indescribable  reason,  is  the 
one  great  necessity  that  men  do  not  purchase  as  they  provide 
for  other  wants,  but  await  having  their  needs  urged  upon 
them  through  the  personal  visit  of  the  agent.  Every  man 
owes  it  to  himself  ind  owes  it  to  those  associated  with  him 
by  relationship,  business  connection  or  other  ties  to  listen  to 
the  message  of  his  protection  needs  as  it  is  brought  to  him 
in  the  expert  conciseness  of  the  trained  agent.  There  are 
ways  of  covering  insurance  needs  represented  in  different 

14 


236  The  Romance  of  Life  Insurance. 

plans  of  life  insurance  as  varied  as  the  needs  themselves,  and 
of  these  plans  and  systems  the  knowledge  of  the  agent  sup- 
plies a  fund  of  valuable  information. 

It  is  truly  amazing  that  appreciation  of  the  expert  and 
professional  side  of  the  agent  as  a  dispenser  of  life-insurance 
knowledge  has  been  so  long  delayed,  and  even  now  is  not 
utilized  with  a  true  sense  of  its  real  importance. 

Life  insurance  has  been  built  up  by  the  work  of  the 
agent.  The  business  of  protecting  and  caring  for  the 
widows  and  orphans  has  gone  on  through  the  work  of  the 
agent.  So  far  as  the  policyholders  are  concerned,  the  agent 
stands  as  the  "  party  of  the  second  part,"  summing  up  in  his 
personality  the  whole  life-insurance  company.  In  the  com- 
pany's eyes  the  agent  stands  as  the  representative  of  the 
policyholders.  To  his  credit  be  it  said  that  the  agent  of 
to-day  fulfils  his  dual  position  with  a  lofty  sense  of  obliga- 
tion that  makes  him  faithful  to  the  company  and  fearless  in 
the  service  of  the  policyholder.  Strangely  enough,  this  dual 
relationship  has  not  reacted  to  win  sympathy  for  the  agent, 
and  has  left  him,  in  time  of  storm,  to  be  buffeted  between 
conflicting  elements. 

"  A  boy  visiting  the  Senate  chamber  became  interested  in 
the  official  clergyman,  who,  his  father  explained,  was  the 
chaplain,"  is  the  story  told  by  George  H.  Gaston  to  illus- 
trate this  point.  "  '  Oh,'  the  boy  exclaimed,  '  he  prays  for  the 
Senate,  doesn't  he?  '  '  No,'  said  his  father,  grimly,  '  he  just 
gets  up  and  looks  at  the  Senate  and  then  he  prays  for  the 
country/ ' 

Mr.  Gaston,  who,  as  second  vice-president  of  the  Metro- 
politan Life,  directs  one  of  the  largest  corps  of  agents  in  the 
country,  points  the  moral: 

During  the  whole  course  of  the  Armstrong  investigation  the 
people  read  the  exaggerated  and  in  some  instances  distorted 


The  Life-insurance  Ambassador.  237 

accounts  of  the  proceedings  that  appeared  in  the  public  press,  and 
then  prayed  for  the  public  and  the  policy-holders,  having  no  regard 
for  the  integrity  or  the  welfare  of  the  agents,  the  bone  and  sinew 
of  the  great  life-insurance  organizations. 

The  chief  sufferers  from  the  disapprobation  of  the  meth- 
ods current  in  some  life-insurance  home  offices  were  the 
life-insurance  agents,  and  the  laws  enacted  to  eliminate  life- 
insurance  abuses  have  borne  harshly  on  the  unoffending 
agent,  forcing  the  withdrawal  of  many  and  reducing  the 
remuneration  of  those  who  remained  in  the  business.  So  far 
as  the  wholesale  reduction  of  the  number  of  agents  and  the 
disorganization  of  agencies  was  affected  by  overdrastic 
legislation,  to  this  legislation  must  be  charged  the  economic 
loss  to  the  family  and  to  the  country  which  has  followed 
curtailment  of  the  agents'  activities. 

William  C.  Johnson,  a  prominent  New  York  agency 
manager,  says,  in  criticism  of  Section  97  of  the  new  New 
York  State  laws,  which  has  severely  limited  the  remunera- 
tion of  the  agent : 

When  the  original  limitation  was  passed,  the  State  for  the  first 
time  in  history  undertook  to  establish  not  a  minimum  but  a  maxi- 
mum rate  of  wages.  After  experience  under  it  the  employers  come 
forward  in  a  body  and  say  that  they  can  not  conduct  their  business 
efficiently  or  retain  their  employees  unless  authorized  to  increase 
wages  over  the  scale  to  which  they  were  improperly  reduced  two 
years  ago.  We  have  never  known  of  a  unanimous  desire  on  the 
part  of  employers  of  any  class  of  labor  to  increase  wages  due  to 
any  affection  for  the  workers  or  any  other  reason  except  business 
necessity,  to  avoid  crippled  and  unprofitable  operation.  Yet  the 
discretion  which  in  all  other  matters  the  State  properly  leaves  to 
the  employer  it  denies  to  the  insurance  manager,  the  prosperity 
of  whose  company  and  the  security  and  advantage  of  the  policy- 
holders  in  which  depend  upon  the  steady  introduction  of  an 
adequate  volume  of  new  lives,  and  who  to  that  end  must  employ 
many  honest,  skilful  and  energetic  men  for  the  trying  and  difficult 
work  of  selling  life  insurance  on  the  uncertain  basis  of  a  recom- 


238  The  Romance  of  Life  Insurance. 

pense  arrived  at  by  commissioias  on  accepted  business  only.  What 
is  in  every  other  kind  of  a  business,  business  prudence,  in  life  insur- 
ance is  seemingly  sin. 

Mr.  Johnson  spoke  thus  feelingly  when  Governor 
Hughes  vetoed  the  first  bill  passed  by  the  Legislature  of 
New  York,  designed  to  moderately  increase  the  agent's 
remuneration  from  the  low  point  fixed  in  the  original  Arm- 
strong legislation.  Governor  Hughes  thus  explained  his 
veto: 

While  I  am  desirous  that  insurance  agents  should  receive  reason- 
able compensation  and  such  rewards  as  regard  for  the  interest  of 
the  policyholders  will  justify,  and  that  our  New  York  companies 
shall  have  the  recognition  and  enjoy  the  confidence  which  they 
deserve,  I  can  not  approve  the  bill  before  me,  as  I  believe  that  its 
provisions  are  ill-advised  and  that  its  enactment  would  impair  the 
safeguards  which  should  protect  this  important  business. 

The  New  York  Commercial  in  an  editorial  thus  inter- 
preted the  governor's  statement: 

With  one  hand  the  "  life-insurance-reform "  Governor  of  the 
State  of  New  York  pats  these  men  on  their  backs  and  says : 

"  Bravo,  boys !  You're  doing  finely.  The  chastening  that  I  and 
the  Armstrong  Committee  administered  to  you  has  borne  its  full 
fruit.  You  are  all  right.  You  have  rehabilitated  yourselves  and 
your  companies.  You  deserve  recognition.  You  are  worthy  of 
confidence.  The  State  stands  ready  to  extend  the  one  and  to  give 
proof  of  the  other  —  the  faith  that  is  in  it.  Here  ought  to  be  my 
signature  to  your  bill,  gentlemen !  " 

But  with  the  other  hand  he  stabs  them  and  their  cause  with  the 
poniard  of  a  veto  which  says,  plainly  enough,  "  Your  period  of 
probation  is  not  yet  closed.  Your  companies  have  not  yet  purged 
themselves  of  the  taint  of  the  old  '  scandals.'  We'll  keep  the  screws 
of  the  law  on  you  a  while  longer,  I  guess,  Good-day ! " 

Construing  Governor  Hughes'  statement  from  either  his 
own  words  or  the  interpretation  of  an  unfriendly  newspaper, 
the  message  carries  an  appreciation  of  the  agent  which  has 


The  Life-insurance  Ambassador.  239 

since  brought  about  an  amendment  of  Section  97.  This 
section  as  amended  in  1909  extends  the  period  of  renewal 
commissions  from  nine  to  fourteen  years  and  increases  the 
collection  fee  allowed  after  fourteen  years.  Its  chief  im- 
portance comes  from  the  fact  that  it  is  a  step  in  the  right 
direction. 

The  hope  of  the  situation  lies  in  the  fact  that  life  insur- 
ance has  been  purged  of  high-pressure  methods  and  expen- 
sive agency  operations  which,  in  their  extravagances, 
perhaps,  swung  as  far  beyond  the  normal  of  a  conservative 
economy  in  one  direction  as  the  parsimonious  limitations  of 
New  York's  original  reform  laws  swung  in  the  other.  In 
so  much  as  a  happy  mean  is  possible,  both  extremes  are 
wrong,  but  the  parsimonious  extreme  must  bear  the  brunt 
of  hardship  unjustly  inflicted  on  the  agents  and  upon  de- 
pendents of  uninsured  men  and  women  not  reached  for 
insurance  because  of  the  crippled  activities  of  the  agent. 
Nor  would  these  needy  beneficiaries  agree  that  any  degree 
of  managerial  extravagance  was  so  bad  for  them  as  the 
deplorable  total  lack  of  insurance. 

The  man  to-day  who  can  carry  with  success  and  credit 
the  ambassadorial  message  of  insurance  protection  is  not  the 
kind  of  a  man  that  can  be  retained  permanently  in  a  vocation 
that  does  not  remunerate  him  fittingly  for  his  labors. 

If  the  life-insurance  business  needs  agents,  it  must  have 
honorable,  progressive  men  of  alert,  producing  qualities. 
Such  men  are  worthy  of  their  hire.  If  the  life-insurance 
business  can  get  along  without  agents,  no  agent  is  worthy 
of  retention,  and  any  sum  paid  to  the  agent  is  a  useless 
expense. 

Can  life  insurance  be  sold  without  agents  ? 

The  unanimous  negative  of  life-insurance  officialdom  is 
thus  concisely  expressed  by  John  B.  Lunger,  vice-president 


240  The  Romance  of  Life  Insurance. 

of  the  Travelers'  Insurance  Company  and  actuary  of  high 
repute : 

Every  experiment  by  a  life-insurance  company  to  sell  insurance 
"  over  the  counter  "  has  met  with  scant  success ;  every  governmental 
scheme  to  provide  insurance  to  those  who  will  voluntarily  apply 
for  it  has  ended  in  failure.  Were  it  not  for  the  hard,  persistent 
work  of  the  agents,  the  volume  of  insurance  carried  in  our  Ameri- 
can companies  would  be  measured  by  tens  of  thousands  instead 
of  thousands  of  millions.  The  agent  is  an  exhorter  to  duty,  an 
advocate  of  thrift,  the  counselor  of  the  insured  and  the  benefactor 
of  his  family.  He  is  indispensable  alike  to  the  companies  and  the 
public. 

The  operation  of  two  English  life-insurance  companies 
of  undoubted  excellence,  one  of  them  the  oldest  old-line  life- 
insurance  company  in  the  business,  gives  emphatic  answer 
that  the  business  of  life  insurance  can  not  be  successfully 
conducted  without  the  active  work  of  the  agent.  One  of 
these  companies,  the  London  Life  Association,  with  total 
expenses  amounting  to  but  four  and  one-half  per  cent  of  the 
income,  during  the  year  1907  wrote  only  a  total  of  $1,863,- 
ooo  of  insurance.  Those  who  go  into  this  company  are 
satisfied  and  stay  in  it,  but  without  the  agent  it  seems  unable 
to  bring  in  enough  business  really  to  dignify  the  company  as 
a  going  life-insurance  institution.  The  old  Equitable  of 
London,  another  excellent  non-agency  company  and  the 
oldest  old-line  life-insurance  company  in  the  world,  with  its 
long  years  of  honorable  service  and  economical  insurance  to 
its  credit,  and  with  an  expense  rate  amounting  during  1907 
to  but  three  and  one-third  per  cent  of  the  total  income, 
issued  during  that  year  only  two  hundred  and  thirty-six  new 
policies,  covering  $1,368,000  insurance.  Compare  these  fig- 
ures with  the  record  of  one  New  York  general  agency  of 
$17,116,513  of  new  insurance  written  during  1908  for  a 


The  Life-insurance  Ambassador.  241 

western  company  in  the  two  boroughs  of  Manhattan  and  the 
Bronx ! 

Plainly,  economy  in  life  insurance  which  reaches  a  point 
that  curtails  the  operation  of  the  business  and  practically 
denies  its  benevolent  service  to  thousands  and  millions  of 
people  only  waiting  to  have  their  insurance  needs  and  wants 
made  plain  to  them,  is  not  the  kind  of  economy  that  econ- 
omizes. 

Who  has  ever  heard  of  a  widow  or  an  orphan,  business 
associate,  or  other  beneficiary  of  a  life-insurance  policy 
begrudging  the  remuneration  paid  to  the  agent?  To  the 
contrary,  every  active  life-insurance  worker  enjoys  a  grate- 
ful respect  from  the  beneficiaries  of  life  insurance  who  can 
not  but  look  upon  the  man  who  carried  the  protective  mis- 
sion into  their  home  or  their  business  house  as  a  personal 
and  a  public  benefactor,  whose  services  to  them  would  be 
underpaid  without  their  grateful  appreciation. 

So  rare  is  the  instance  of  a  citizen  of  the  United  States 
applying  for  insurance  direct  that  a  person  doing  so,  by  the 
very  act,  puts  himself  under  suspicion  and  is  made  the  sub- 
ject of  the  closest  scrutiny  to  detect  the  moral  or  physical 
selection  he  is  suspected  at  once  of  wanting  to  exercise 
against  the  company. 

Josh  Billings  humorously  satirizes  the  self-selected 
applicant  for  life  insurance : 

I  kum  to  the  conclusion  lately  that  life  was  so  unsartin  that  the 
only  way  for  me  to  stand  a  fair  chance  with  other  folks  was  to  get 
my  life  insured,  so  I  kalled  on  the  agent  of  the  Garden  Angel 
Insurance  Company,  and  answered  the  following  questions  which 
were  put  to  me  over  the  top  of  a  pair  of  spectacles  by  a  slick  old 
fellow  with  as  round  a  gray  head  on  him  as  was  ever  owned: 
"Are  ytt  a  mail  or  f email?  If  so,  state  how  long  yu  have  been  so. 
Had  yu  a  father  or  mother?  If  so,  which?  Are  yu  subject  to 


242  The  Romance  of  Life  Insurance. 

fits,  and  if  so,  do  yu  have  more  than  one  at  a  time?  What  is  your 
precise  fiting  wate?  Did  you  ever  have  any  ancestors,  and  if  so, 
how  much?  Du  yu  have  any  nightmares?  Are  yu  married  or 
single,  or  are  yu  a  bachelor?  Have  yu  ever  committed  suicide? 
If  so,  how  many  times  and  how  much  did  it  affect  yu?"  After 
answering  these  questions  like  a  man,  in  the  affirmative,  the  slick, 
little  fat  old  feller,  with  gold  spectacles  on,  said  I  was  insured  fer 
life,  and  probably  would  remain  so  fer  years.  I  thanked  him  and 
smiled  and  retired. 

Many  an  applicant  less  favored  with  the  sense  of  humor 
that  Josh  Billings  irresponsibly  displayed,  complicates  the 
work  of  the  agent  by  taking  umbrage  at  the  medical  exam- 
iner or  at  the  action  upon  his  application  in  soliciting  addi- 
tional information  from  the  home  office.  Anxious  as  the 
companies  are  to  get  a  proper  volume  of  business,  the  life- 
insurance  applicant  is  none  the  less  closely  scrutinized, 
because  a  life-insurance  policy  means  a  large  benefit  for  a 
relatively  small  premium  and  it  is  therefore  incumbent  upon 
the  life-insurance  company  to  eliminate  those  who,  for  moral 
or  physical  reasons,  add  to  the  normal  hazard.  Life  insur- 
ance in  its  standard  forms  is  for  the  healthy  —  those  who 
are  well  in  mind,  body  and  view  of  life,  and  axiomatically 
these  people  can  only  get  insurance  when  by  being  so  quali- 
fied they  necessarily  feel  least  in  need  of  it. 

Any  man  eligible  for  life  insurance  has  in  that  very 
eligibility  a  large  asset  in  ability  to  command  life-insurance 
protection  at  the  small  outlay  of  the  premium.  A  man  not 
able  to  qualify  for  life  insurance  is  poor  in  the  sense  that 
his  available  funds  must  all  be  kept  intact  for  necessities 
which  death  may  materialize  at  any  time,  and  is  poor  indeed 
when,  in  the  absence  of  available  funds,  he  feels  that 
between  him  and  death  is  but  the  meager  sum  that  he  may 
be  able  to  save  while  death  waits. 

The  only  sure  way  to  have  life  insurance  is  to  get  it 


The  Life-insurance  Ambassador.  243 

when  it  can  be  taken,  and  the  person  who  delays  the  taking 
until  a  more  financially  convenient  time  may  later  learn  of 
qualifications  that  bar  him  completely.  To  be  rejected  from 
life  insurance  does  not,  as  so  many  assume,  mean  that  death 
is  a  matter  imminent,  as  life-insurance  rejections  cover  more 
than  the  seriously  diseased  or  impaired,  and  are  of  neces- 
sity based  on  human  judgment,  which  may  or  may  not  be 
correct. 

Upon  the  recent  occasion  of  a  life-insurance  president's 
visit  to  one  of  his  important  agents,  the  agent  humorously 
stated  to  him  that  the  men  who  had  been  rejected  in  the 
community  for  life  insurance  had  been  complaining  of  over- 
exertion  acting  as  pallbearers  for  those  who  were  accepted. 

Rejections  in  life  insurance  deprive  the  agent  of  any 
remuneration  whatsoever  for  his  services,  and  so  far  as 
these  rejections  can  be  avoided  with  supplementary  informa- 
tion available  to  the  alert  agent,  they  will  be  so  avoided. 
Custom  has  rightfully  ordained  that  the  matters  submitted 
in  a  life-insurance  application  be  deemed  confidential,  and 
the  company  therefore  does  not  in  general  enlighten  the 
agent  or  even  the  prospect  as  to  the  causes  of  rejection. 
Every  man  who  is  rejected  or  offered  a  qualified  policy  with- 
out explanation  is  disposed  to  feel  somewhat  aggrieved,  and 
it  takes  all  the  fortitude  of  the  agent  to  console  himself  with- 
out a  home-office  explanation.  Frequently  the  man  rejected 
by  a  life-insurance  company  applies  for  insurance  elsewhere 
—  which  is  one  excellent  way  of  confirming  and  putting  to 
the  test  the  judgment  of  the  rejecting  company  upon  the 
risk. 

Ironically  enough,  many  a  man  who  applies  for  insur- 
ance in  unwilling  mood  after  long  and  wearying  solicitation, 
finding  himself  rejected  is  changed  at  once  into  a  feverish 
applicant  for  insurance,  and  in  his  eagerness  to  obtain  it  he 


244  The  Romance  of  Life  Insurance. 

is  prolific  in  sending  applications  and  explanations  to  any 
company  he  thinks  might  take  him. 

Upon  declining  a  chronic  case  of  this  type,  a  western 
company  recently  received  this  aggrieved  epistle  from  the 
applicant,  who  thus  accounted  for  his  previous  rejection: 

I  made  application  to  one  of  the  eastern  companies  and  they  sent 
a  little  nut  of  a  doctor  to  examine  me,  who  asked  all  about  my 
father,  mother,  grandfather  and  mother-in-law;  how  much  they 
weighed;  how  far  they  could  jump;  if  they  were  Mormons;  how 
the  family  stood  on  the  Japan  question ;  if  they  had  sore  eyes ;  how 
they  voted  in  1892,  and  how  old  was  Ann. 

After  prying  into  all  my  personal  affairs,  and  getting  me  to  admit 
one  set  of  false  teeth  in  the  family,  he  got  down  to  the  athletic 
stunt  with  me  and  punched  me  in  the  ribs,  pulled  up  my  shirt  and 
listened  through  a  telephone  at  my  digestion,  felt  my  pulse,  slapped 
me  on  the  chest,  had  me  stick  out  my  tongue  and  then  stuck  his 
fingers  in  my  mouth  to  examine  my  teeth. 

All  this  time  he  was  muttering  over  a  lot  of  long  names  and 
some  damned  outlandish  jargon,  which,  as  I  now  believe,  was  cer- 
tain opprobrious  epithets  which  he  was  afraid  to  apply  to  me  in 
plain  English.  After  he  had  mussed  and  pounded  me  around  for 
about  an  hour  he  went  back  to  his  office  and  filed  a  bill  of  com- 
plaint against  me.  The  upshot  of  the  whole  matter  was  that  I 
didn't  get  my  policy. 

It  goes  without  saying  that  the  company,  the  medical 
examiner  and  the  agent  are  all  most  anxious  to  avoid  rejec- 
tions ;  the  company  loses  the  business  and  the  costs,  the 
agent  loses  the  commission,  and  the  doctor  comes  in  for  an 
unpleasant  duty. 

As  a  salesman,  the  life-insurance  agent  has  two  advan- 
tages :  first,  in  supplying  a  need  which  the  experience  of 
years  shows  will  be  supplied  only  upon  direct  personal  solici- 
tation, and  secondly,  in  the  fact  that  practically  every  health- 
ful person  of  insurable  age  is  a  prospective  customer,  either 
for  a  first  policy  or  for  additional  insurance.  Among  pros- 


The  Life-insurance  Ambassador.  245 

pects  for  insurance,  the  man  already  carrying  a  considerable 
volume  is  the  more  desirable  prospect.  This  is  usually  the 
<:ase  for  the  agent  who  has  sold  him  his  previous  insurance, 
and  for  any  other  agent  is  the  case  where  the  applicant  is 
parrying  the  full  limit  with  the  original  soliciting  agent  or 
where  he  holds  a  grievance  of  misrepresentation  against  the 
original  company. 

"  I  was  sold  a  sausage  for  a  ham,"  was  the  complaint  of 
one  disgruntled  policyholder  over  the  work  of  an  itinerant 
agent  who  grossly  misrepresented,  "  and  while  I  could  only 
claim  to  have  paid  the  price  for  a  sausage  I  am  not  satis- 
fied." There  have  been  in  the  life-insurance  business  in  the 
past  too  many  agents  who  gilded  the  lily  in  gross  exaggera- 
tion, consoling  themselves  with  the  thought  that  underneath 
the  gild  there  still  remained  the  lily,  unmindful,  in  their 
weak  dishonesty,  that  the  lily  was  more  impressive  without 
the  gilding.  To  these  men,  at  times  abetted  by  some  of  their 
kind  in  the  home  offices,  are  to  be  charged  the  misrepresenta- 
tions as  to  policies  and  prospective  dividends  that  have 
brought  dissatisfaction. 

From  the  days  of  the  old  "  Let  me  take  your  life  "  insur- 
ance solicitor  to  the  time  of  the  present  high-grade  insurance 
representatives,  marks  a  period  that  has  almost  completely 
removed  from  agency  ranks  the  nonsuccessful,  indolent  and 
irresponsible  agents  of  former  years  who  were  wont  to  ally 
themselves  with  some  business  and  were,  in  their  desire  to 
assume  a  respectability  of  occupation,  tolerated  in  life  insur- 
ance. 

This  toleration  was  based  upon  a  false  managerial  theory 
that  so  long  as  an  agent  was  remunerated  only  on  a  com- 
mission basis,  it  was  the  agent  and  not  the  cause  that  suf- 
fered from  the  lack  of  quality  in  the  man  and  the  lack  of 
quantity  in  his  work.  Reasoning  of  this  kind,  adopted  by 


246  The  Romance  of  Life  Insurance. 

analogy  from  other  lines  of  business  eager  to  engage  men 
upon  a  commission  basis  without  proper  regard  to  the  char- 
acter of  the  man,  has  in  a  sense  misrepresented  the  thousands 
of  worthy  life-insurance  workers  in  the  past  by  including 
men  who  had  neither  the  quality  to  represent  so  sacred  and 
important  a  business  as  life  insurance,  nor  the  energy  to 
obtain  results  in  sufficient  quantity  to  remunerate  them  with 
a  wage  commensurate  with  the  dignity  of  their  calling. 

With  the  elimination  of  the  unworthy  and  nonsuccessful 
agent,  ever  the  negligible  few,  by  raising  the  standard  of 
agency  qualification  to  average  up  to  the  dignity,  industry 
and  integrity  that  has  inspired  the  large  majority  of  life- 
insurance  workers  in  the  business  of  insuring  men's  lives, 
the  public  has  been  quick  to  accord  the  life-insurance  repre- 
sentative the  professional  recognition  rightfully  his. 

"  This  decade,  which  has  ushered  in  the  era  of  con- 
science," says  Charles  Jerome  Edwards,  president  of  the 
National  Association  of  Life  Underwriters,  "  has  also 
created  an  age  of  confidence,  and  nowhere  is  it  more  appar- 
ent than  in  public  appreciation  of  and  demand  for  life  insur- 
ance. This  is  in  part  the  result  of  the  association  idea,  with 
the  demand  for  clean  methods,  fair  competition,  the  cessa- 
tion of  rebating  and  twisting,  the  elimination  of  the  irre- 
sponsible agent  who  sold  '  schemes  '  instead  of  life  insur- 
ance, the  ignorant  part-time  agent  in  our  cities,  and  the 
'  one-trip  salesman '  in  country  districts." 

The  successful  life-insurance  agent  is  selling  a  proposi- 
tion that  needs  no  exaggeration.  He  is  selling  the  one  thing 
which  the  public  can  buy  at  cost  and  which  no  other  institu- 
tion can  supply. 

After  selling  the  policy,  the  services  of  the  agent  con- 
tinue to  be  of  value  to  the  purchaser.  While  life-insurance 
policies  are  written  to-day  with  admirable  brevity  and  con- 


The  Life-insurance  Ambassador.  247 

ciseness,  in  contradiction  to  the  more  involved  instruments 
of  earlier  periods,  there  is  little  evidence  of  increased  perusal 
and  study  of  the  life-insurance  contract  on  the  part  of  the 
insured.  For  this  reason  the  expert  knowledge  of  the  agent 
properly  utilized  is  a  valuable  asset  to  the  insured,  and  is 
available  over  the  telephone  or  in  ready  acceptance  of  an 
invitation  to  call.  If  a  policyholder  of  an  old-line  life- 
insurance  company  would,  upon  being  approached  to  drop 
or  surrender  the  contract  and  take  out  a  policy  in  some  other 
old-line  company,  immediately  consult  the  original  agent  or 
any  agent  enjoying  his  confidence,  he  would,  as  a  rule,  save 
himself  a  sum  larger  than  the  agent's  commission  for  writ- 
ing the  insurance. 

Among  the  rules  for  branding  the  kind  of  agent  not 
worthy  of  confidence,  none  is  of  more  general  application 
than  that  of  avoiding  the  "  twister  "  who  encourages  the 
dropping  or  exchange  of  one  policy  with  a  reputable  com- 
pany for  the  selfish  purpose  of  obtaining  a  commission  by 
rewriting  the  policyholder  in  another  company,  to  the  policy- 
holder's  loss.  Some  few  agents,  taking  advantage  of  the 
reaction  against  deferred-dividend  policies,  or  policies  in 
which  the  surplus  was  withheld  for  years  to  be  divided  at 
the  end  of  a  contract  period,  urged  the  surrender  of  deferred- 
dividend  policies  in  order  to  sell  the  applicant  a  new  policy 
upon  the  annual-dividend  plan.  This  is  "  twisting "  in  its 
worst  form,  as  by  the  surrender  of  this  contract  an  applicant 
upon  a  deferred-dividend  plan  loses  the  advantage  of  all  the 
surplus  accumulated  upon  his  contract,  and  loses  the  oppor- 
tunity to  participate  in  addition  in  the  surplus  of  all  mem- 
bers who  retire  before  the  end  of  the  dividend  period. 

Generally  speaking,  no  man  should  exchange  or  sur- 
render an  old-line  policy  at  the  advice  of  a  "  twisting " 
agent,  and  the  man  who  would  surrender  a  tontine  or 


248  The  Romance  of  Life  Insurance. 

deferred-dividend  policy  is  wronged  in  addition  by  the  for- 
feiture of  his  accumulated  surplus.  It  is  scarcely  just  to 
say  that  all  "  twisting  "  agents  are  dishonest,  but  it  is  safe  to 
say  that  where  not  dishonest  they  represent  the  "  holier  than 
thou  "  type  of  man  who  thinks  that  a  large  pecuniary  loss  to 
the  patron  of  a  rival  insurance  corporation  is  more  than 
offset  by  membership  in  the  institution  that  he  represents. 
The  disturbed  conditions  in  life  insurance  since  the  investi- 
gation took  place  in  1905,  offered  opportunity  to  the 
"  twister  "  to  ply  his  nefarious  practices.  Fortunately,  how- 
ever, the  "  twisting  "  type  of  agent  was  the  first  to  succumb 
under  the  drastic  reduction  in  commissions,  and  the  high 
type  of  agent  who  stayed  in  the  business  to  await  a  return 
of  better  conditions  was,  generally  speaking,  above  advising 
a  policyholder  to  his  disadvantage  in  order  to  make  a  per- 
sonal profit. 

George  T.  Dexter,  second  vice-president  of  the  Mutual 
Life,  gives  six  reasons  for  concluding  that  "  twisting  is  an 
evil  which  no  honorable  company  can  afford  to  treat  with 
the  least  degree  of  allowance."  The  six  reasons  are : 

1.  Because  it  almost  always  works  a  direct  injury  to  the  policy- 
holders  rather  than  a  benefit. 

2.  If  in  isolated  instances  it  may  prove  to  the  pecuniary  advan- 
tage of  the  policyholder,  the  question  whether  it  is  likely  to  do  so 
must  necessarily  be  settled  by  the  twister  himself.    The  latter  is  dis- 
qualified to  decide  the  case,  because  he  is  pecuniarily  interested  in 
the  outcome.    He  is  not  and  can  not  be  an  impartial  judge. 

3.  Even  if  occasionally  the  insured  be  benefited,  too  often  the 
twister  merely  succeeds  in  dissatisfying  the  policyholder  with  the 
insurance  he  has,  leading  him  ultimately  to  abandon  the  same  with- 
out prevailing  upon  him  to  take  another  policy  in  its  stead. 

4.  The  net  result  of  the  twister's  work  is  fewer  people  insured. 

5.  The  twister  culls  out  the  good  risks  of  the  company  victim- 
ized, resulting  in  adverse  selection  to  the  detriment  of  the  remaining 


The  Life-insurance  Ambassador.  249 

policyholders.     This  is  a  grievous  wrong  to  policyholders,   and  a 
gross  violation  of  the  ethics  of  the  business  of  life  insurance.     _ 

6.  The  practice  is  demoralizing  to  the  business  of  life  insur- 
ance in  that  it  tends  to  provoke  reprisals,  setting  the  agents  of  all 
companies  to  preying  upon  the  business  of  all  others. 

With  the  "  twisting  "  agent  has  gone  the  rebater,  as  a 
necessary  consequence  of  the  reduced  commissions,  which, 
certainly  in  this  respect,  achieved  a  happy  result.  Of  course, 
there  remain  men  who  go  into  the  business  from  time  to 
time,  or  who  have  made  a  meager  living  in  it,  too  weak  to 
insist  upon  the  full  price  that  would  include  a  modest 
remuneration  to  themselves  for  their  own  efforts.  There  is 
not  only  in  the  life-insurance  business,  but  in  every  business, 
the  kind  of  man  who  could  not  fairly  sell  a  twenty-dollar 
gold  piece  for  nineteen  dollars.  It  is  of  this  kind  of  mate- 
rial that  rebates  have  been  made.  Rebate  laws  have  done 
much  to  place  disapprobation  upon  the  practice,  both  upon 
the  receiver  as  well  as  the  giver  of  a  rebate,  to  the  extent 
that  the  rebate  is  practically  eliminated  from  life  insurance, 
and  the  rebating  agent  made  amenable,  upon  discovery,  to 
discharge  from  company  service  and  to  criminal  indictment 
under  State  statutes. 

Credit  for  the  war  upon  the  rebater  and  the  "  twisting  " 
agent  and  the  "  part-time  "  agent,  who  has  been  productive 
of  rebates  in  forms  too  insidious  to  be  clearly  defined,  is  to 
be  given  to  the  life  underwriters  themselves,  who,  as  indi- 
viduals and  in  agency  associations,  have  fearlessly  fought 
abuses  that  subtract  from  the  nobility  of  the  business  or 
tend  to  disregard  the  welfare  of  the  policyholder.  Among 
these  agents  was  found  the  greatest  opposition  to  extrav- 
agances current  prior  to  the  Armstrong  investigation,  in  the 
payment  in  certain  companies  of  large  commissions,  in  addi- 
tion to  advances  against  future  renewal  interests  that  made 


250  The  Romance  of  Life  Insurance. 

for  rebates,  and  high-pressure  agency  practices  that  fol- 
lowed orders  to  "  get  results."  These  results  were  too  often 
arrived  at  in  the  old  days  by  offering  insurance  "  flyers," 
with  little  or  no  cost  to  the  purchaser  the  first  year,  and  with 
the  agent  indemnified  by  the  commissions  and  advances  he 
received,  and  remunerated  by  a  bonus  on  volume  of  busi- 
ness. Recognizing  this  as  an  unhealthy  condition  and  one 
that  necessarily  made  for  rebates,  the  type  of  agent  worthy 
to  endure  in  the  business  came  forward  as  a  champion  of 
reduced  commissions  that  would  eliminate  extravagances  of 
this  kind,  and  with  the  extravagances  eliminate  gratuitous 
life  insurance  in  the  form  of  high-pressure,  first-year 
"  flyers." 

Viewing  the  entire  situation  at  the  time  of  the  Arm- 
strong legislation,  it  was  not  unnatural  that  the  restrictions 
adopted  should'be  as  far  below  the  standpoint  of  true  econ- 
omy as  the  old  scale  of  commissions  adopted  by  many  com- 
panies was  above  it. 

As  a  preacher  of  the  life-insurance  gospel  the  agent  must 
live  by  it,  which  differentiates  the  agent  from  the  men 
engaged  in  other  callings  who  halt  at  the  desk,  in  the  pulpit 
or  on  the  platform  to  advocate  life  insurance  for  the  benefit 
of  their  hearers.  Typical  of  this  class  was  the  lamented 
Max  O'Rell,  who  never  lectured  better  than  when  he  said : 

I  don't  care  how  small  the  income  of  a  man  is,  he  should  never 
spend  the  whole  of  it,  especially  if  he  has  a  wife  and  children.  He 
should  at  least  save  enough  to  pay  every  year  the  premium  on  a 
good  life  policy.  No  man  is  worthy  of  the  name  who  does  not  do 
this  at  least  at  the  price  of  whatever  privations  he  has  to  submit 
to.  Some  pleasure  may  be  derived  from  high  living,  but  certainly 
no  happiness.  I  will  go  further  and  say  that  while  there  may  be 
pleasure  in  self-indulgence,  pleasure  for  a  few  minutes,  there  is 
invariably  happiness  in  self-abnegation,  forethought  and  devotion 
to  others,  and  lasting  happiness,  too.  And  what  should  make  a  man 


The  Life-insurance  Ambassador.  251 

always  prefer  happiness  to  pleasure  is  that  it  lasts  ever  so  much 
longer. 

Though  the  work  of  the  agent  naturally  causes  him  to 
preach  of  the  duties  of  his  brother  man,  he  poses  only  as  a 
business  man.  The  first  to  repudiate  the  missionary  talk 
which  a  discredited  life-insurance  president  made  on  the 
witness  stand  during  the  days  of  the  Armstrong  investiga- 
tion about  the  "  eleemosynary  character  of  the  agent  and  his 
work  "  was  the  agent  himself  in  disgusted  denial. 

He  tells  the  prospect  of  his  duty  with  a  diplomacy  that 
avoids  criticism,  and  with  a  frankness  permissible  with 
professional  privilege.  As  a  business  visitor  and  associate 
the  life-insurance  agent  is  valuable  for  the  breadth  of  view 
which  comes  with  dealing  with  a  variety  of  men,  for  the 
toleration  which  must  be  his  to  understand  that  every  man 
has  a  right  to  view  his  own  obligations  in  his  own  way. 
Toleration  is  one  of  the  most  necessary  qualities  of  the 
agent  ere  he  be  given  opportunity  to  answer  the  sophistries 
of  a  man  who  does  not  believe  in  his  own  utterances  or  who 
is  too  willing  to  believe  the  impossible  when  it  comes  to  life 
insurance. 

A  life-insurance  story  at  present  going  the  rounds  of  the 
press  tells  of  an  agent  who  apparently  considered  that  there 
was  a  limit,  beyond  which  toleration  was  no  longer  a  virtue. 
With  a  cheery  "  Good  morning/'  this  agent  is  represented 
as  visiting  the  office  of  a  "  bloated  plutocrat  who  already  had 
a  hundred  thousand  on  his  life,  and  a  guarantee  from  his 
physician  that  he  would  never  pay  another  premium." 

"  I  represent  the  Incidental  Life  and  Trust  Company,"  said  the 
agent. 

"  Don't  do  it  here,"  was  the  response. 

Apparently  without  taking  offense  or  changing  attitude,  the  agent 
continued : 
15 


252  The  Romance  of  Life  Insurance. 

"  What  would  you  say  to  a  policy  that  would  pay  you  an  annuity 
of  twenty  per  cent  in  advance,  beginning  at  once  ?  " 

"  Umph,"  said  the  plutocrat. 

"  Then  if  you  die  within  ten  years,  you  get  double  the  face  value 
of  the  policy,  and  the  sooner  you  die  the  more  you  get." 

"  Don't  believe  it." 

"After  you  are  dead  your  children  get  an  annuity  of  five  per 
cent  each  as  long  as  they  live."  * 

"  Don't  see  how  it  can  be  done." 

"  That  means,"  continued  the  agent,  doing  a  lightning  calcula- 
tion, "if  you  have  twenty  children,  the  company  will  pay  out  the 
face  value  of  the  policy  annually  as  long  as  your  children  live." 

"  Yes,  and  what's  the  premium  ? "  growled  the  banker,  with 
sordid  sarcasm. 

"  The  premium  can  be  paid  out  of  your  own  annuity,  which  will 
leave  you  a  net  income  of  about  fifteen  per  cent." 

"Well,  I  might  investigate  that,"  said  the  conservative  man  of 
business,  "but  it  sounds  fishy." 

"  It  is,"  replied  the  youth,  as  he  departed. 

Whether  this  interview  ever  took  place  or  not,  it  is  worth 
repeating  for  the  moral  it  points  of  the  lack  of  appreciation 
which  even  intelligent  men  have  of  the  opportunity  for  life- 
insurance  knowledge  afforded  by  the  visit  of  an  agent  or  for 
seriously  considering  the  matter  of  life  insurance.  Alter- 
natively, this  story  points  to  the  willingness  of  men  who 
should  know  better  than  to  listen  to  apparently  impossible 
propositions,  when  offered  in  the  name  of  life  insurance,  as 
the  primary  cause  for  the  creation  of  all  manner  of  fanciful 
forms  of  life  insurance  and  all  kinds  of  fanciful  forms  of 
life-insurance  prevaricators. 

Responding  to  the  law  of  supply  for  evident  demand,  a 
few  irresponsible  new  companies  came  into  being  within  the 
last  decade,  selling  life  insurance  with  special  stock  schemes 
or  offering  special  contracts  in  addition  to  the  policy  that 
would  carry  profits  on  the  business.  The  estimates  under 
these  contracts  were  wholly  absurd,  but  the  absurdity  did 


The  Life-insurance  Ambassador.  253 

not  seem  apparent  to  many  who  purchased  them.  The 
operation  of  the  special  advisory  board  contract,  or  of  the 
special  privilege  of  purchasing  stock  in  a  subsidiary  agency 
company  or  other  corporation  associated  with  the  sale  of  the 
life-insurance  policy,  has  worked  out  to  the  great  disappoint- 
ment of  the  patrons  and  called  down  upon  the  special  con- 
tract legal  prohibitions.  Coupled  with  supplementary  con- 
tracts and  other  fanciful  provisions,  is  the  inherent  cost  of 
covering  losses  by  death  which  remains  in  the  contract  and 
to  which  is  added  an  additional  cost  from  being  harnessed 
to  a  supplementary  contract  unsalable  upon  its  merits  alone. 

With  the  elimination  of  the  misrepresenting  agent,  of  the 
high-pressure  methods  of  the  big  company  extravagantly 
"  getting  results,"  and  of  the  special  contract  and  all  other 
forms  of  supplementary  contracts  by  the  younger  company, 
the  business  has  been  purged  in  its  agency  department,  leav- 
ing a  quality  of  man  in  the  agency  rank  and  file  not  excelled 
in  any  business  and  comparing  favorably  with  the  rank  and 
file  of  the  professions. 

And  why  not? 

To  quote  one  of  the  most  successful  general  agents  of 
the  country,  John  I.  D.  Bristol,  of  New  York  city: 

The  profession  of  life  insurance  affords  a  vocation  alike  grati- 
fying to  the  higher  faculties  and  satisfying  to  those  prudential 
qualities  whose  aim  is  a  competency  from  a  noble  calling  in  life. 
The  successful  representative  of  a  great  life-insurance  company  has 
daily  opportunities  of  self-cultivation.  He  is  brought  in  hourly 
contact  with  the  most  successful  business  and  professional  men.  A 
perfect  human  nature  becomes  his  daily  theme.  The  saving  of 
homes,  the  education  of  children,  the  prevention  of  embarrassed 
estates,  the  creation  of  competencies  for  age,  and  a  sure  provision 
for  mothers  and  widows  are  associated  with  and  dependent  upon 
the  advice  he  gives  and  the  acceptance  of  the  figures  and  plans  he 
offers.  Life  insurance  at  its  best  is  the  highest  philanthropy  for 
the  best  of  men,  and  an  ideal  selfishness  for  those  less  gifted  in 


254  The  Romance  of  Life  Insurance. 

tender  and  benevolent  feelings.  The  acceptance  of  its  benefits 
ennobles  both  the  men  who  professionally  offer  them  and  him  who 
accepts  them. 

Life-insurance  work  goes  on  by  the  work  of  the  agent, 
and  it  is  a  work  that  makes  the  home  happier  and  more 
secure.  As  such  it  makes  happier  and  more  secure  the 
community,  the  commonwealth  and  the  federation.  What- 
ever life  insurance  is,  the  agent  has  made  it.  Whatever  life 
insurance  will  attain,  the  agent  must  make  it.  All  the  mil- 
lions that  life  insurance  has  paid  out  have  been  paid  at  the 
suggestion  of  the  agent,  and  all  the  untold  millions  and 
billions  that  life  insurance  will  pay  upon  the  policies  in  force 
to-day,  and  which  will  be  put  in  force  in  the  years  to  come, 
follow  and  will  follow  the  work  of  the  agent  and  go  where 
he  goes. 

When  the  agent  calls,  let  it  be  remembered  that  oppor- 
tunity knocks,  and  that  where  the  agent  stays  and  persuades, 
the  policy  later  on  saves  and  pays.  Selling  the  one  thing 
which  must  be  sold  in  personal  visit,  the  agent  compliments 
where  he  visits  in  the  assumption  that  the  visited  is  ready 
and  willing  to  cover  his  obligations  as  they  are  shown  to 
him  whether  they  precede  or  succeed  his  death. 

The  agent  who  insures  a  man  who  needs  insurance  does 
him  a  favor,  which,  in  its  importance  to  the  prospect  and  his 
family,  minimizes  the  favor  of  patronage  which  the  agent 
receives,  and  the  importance  that  this  agent  attaches  to  the 
patronage. 

Passing  from  the  unit  to  the  mass,  from  the  individual 
policyholder,  to  view  the  multitude  of  insured  people,  exem- 
plifying in  this  splendid  system  of  cooperation  literal  com- 
pliance to  the  injunction  "  Bear  ye  one  another's  burdens," 
is  to  pass  from  the  work  of  the  individual  agent  to  the  col- 
lective forces  of  life  insurance,  as  represented  in  such 


The  Life-insurance  Ambassador.  255 

bodies  as  the  National  Association  of  Life  Underwriters. 
In  thoughtful  appreciation,  Henry  Morse  Stephens,  profes- 
sor of  history  in  the  University  of  California,  addressing  the 
1908  National  Convention  of  Life  Underwriters,  gave  voice 
to  the  social  importance  of  the  agent's  work  when  he  said : 
The  business  that  lies  before  you,  it  seems  to  an  entire  outsider, 
is  not  simply  to  write  this,  that  or  the  other  policy,  but  to  educate, 
as  you  have  educated,  the  people  of  the  United  States  into  the 
belief  that  poverty  is  not  a  necessary  part  of  a  modern  State;  that 
poverty  is  something  that  can  be  eliminated  by  the  evolution  of 
the  modern  system  of  insurance.  I  do  not  stand  here  to  talk  of  any 
particular  measure,  for  or  against;  I  do  not  stand  here  to  advo- 
cate any  particular  measure,  but  simply  to  point  out  that  the  trend 
of  the  centuries  has  been  toward  the  recognition  of  the  duty  of  the 
State  with  regard  to  the  poor  and  the  afflicted  and  the  dependent; 
that  the  trend  is  moving  fast  toward  paternalism  in  certain  coun- 
tries. .  .  .  Whether  or  not  paternalism  becomes  a  characteristic 
of  the  future  evolution  of  the  American  government  —  as  it  is 
becoming  a  part  of  the  development  of  the  European  governments 
—  depends  precisely  upon  such  associations  as  this,  upon  such  people 
as  I  see  before  me  here.  You  may  regard  paternalism  as  a  good 
thing.  You  may  think  it  is  time  that  the  United  States  should  take 
its  place  among  the  great  paternal  powers.  You  may,  however, 
take  the  precisely  opposite  view  —  I  believe  most  individualistic 
Americans  do.  In  which  case  let  me  warn  you,  as  only  a  student 
of  the  centuries  has  a  right  to  warn  you,  that  if  you  desire  to  avoid 
paternalism  you  must  carry  on  a  great  campaign  of  education,  and 
teach  the  people  to  take  care  of  themselves,  and  to  look  after  their 
own  future,  or  else  the  demand  will  inevitably  come  that  the  State 
shall  look  after  them  and  look  after  the  future  for  them. 

Professor  Stephens'  tribute  to  the  workers  of  life  insur- 
ance is  no  more  noteworthy  than  his  comments  on  the 
menacing  alternative  of  State  insurance  or  State  systems  of 
old-age  pensions.  In  an  editorial  upon  this  subject,  in  1909, 
the  New  York  Sun  concluded : 

The  idea  of  depending  on  government  for  support,  if  it  once 
obtained  a  foothold,  would  have  an  effect  both  upon  independence 


256  The  Romance  of  Life  Insurance. 

of  individual  character  and  upon  the  whole  attitude  of  the  people 
toward  the  government,  the  gravity  of  which  it  is  impossible  to 
estimate. 

The  cause  of  the  agent  is  truly  the  cause  of  the  indi- 
vidual, the  home  and  the  nation. 

In  the  words  of  another  great  educator : 

"  The  individual,  the  home  and  the  nation,"  said  Dr.  Nathan  C. 
Schaeffer,  Pennsylvania's  superintendent  of  public  instruction,  and 
the  then  president  of  the  National  Education  Association,  "  owe  the 
founders  of  safe  and  reliable  life  insurance  a  debt  of  gratitude 
which  words  can  not  express,  but  which  hearts  can  feel  and  homes 
can  show,  and  which  the  State  should  never  fail  to  recognize  in  its 
protective  legislation." 

Whatever  there  is  of  the  public  good  in  the  act  of  insur- 
ing one's  life  remains  undiscussed  in  the  agent's  canvass. 
None  the  less  it  remains,  and  remaining,  sheds  luster  on  the 
labors  of  the  agent  —  the  life-insurance  ambassador. 


INDEX 


A  PAGE 

Abbe  Pascal's  work 109 

Abridging  the  right  of  contract..    142 
Abuses,  Consulting  Actuary  Wolfe 

on   147 

Abuses,    Cost  to   the   policyholder 

of 42 

Abuses,   Relative  proportions  of. .    137 
Account   with   policyholders,   Old- 
line  life  insurance  in 98 

Achieving  correct  legislation,  Pros- 
pects of 18 

Actuaries,  Early 50 

Adding  tax  to  premiums 176 

Adding  years  to  age,  English  sys- 
tem of  grading  risks 117 

Adolescence,  Life  insurance  in...     65 

JEtna,  Life 161 

^Etna  Life,  Remarks  of  the 161 

Age,  Adjustment  for 76 

Agencies  organize  on  industrial..   225 
Agencies  to-day,  Rank  and  file  of.  253 

Agency  methods,  purging 238 

Agency  ranks,  Weeding  out   non- 
successful  and  irresponsible . .    246 
Agency  work,  J.  I.  D.  Bristol  on.   253 
Agent     as     sufferer     from     disap- 
proved home  office  practices..   237 
Agent    as    visitor    and    associate, 

Breadth  of   251 

Agent,  Evolution  of 245 

Agent    responding    to    calls    upon 

his  knowledge 247 

Agent's  call  as  opportunity 254 

Agent's  message,   Cleveland  Press 

on   234 

Agents,     necessity     of,     John     B. 

Lunger  on 240 

Agent's  services,  Continued  value 

of    246 

Agent's  unclaimed  crown 256 

Agent  worthy  of  his  hire 241 

Alexander,  James  W 38,  373 

Alexander,   President,  relationship 

to  younger  Hyde 37 

Ambassadorial     message     of     the 

agent 233 

America,  Life  insurance  in 51 

American  Experience  Table...  105,  106 
"  American  Lawyer,"  Figures  of.    164 
American   legislation,   New  depar- 
tures in  142 

American    life    insurance,    Grover 

Cleveland  upon 20 

American  public  opinion 137 

Ames    Bill    before    the    Judiciary 

Committee    130 

Ames  Bill  in  Congress. 129 


PAGE 

Ames,  Butler  129 

"Amount,  Am  I  insured  in  proper"     66 

Amortized  bond  values 200 

Amounts,  Averaging 230 

Ancient  parallels 44 

Ancient  parallels,  Researches  for.     36 

Annual-dividend  companies 35 

Annual  accounting  laws.. 148 

Annual  instalments  of  10,   15,  20, 

or  varying  years 77 

Annual   to    single   premium,   ratio 

of 79 

Annuities  as  a  whole,  operation  of     73 

Annuities,  how  purchased 72 

Annuities,  Life 50 

Annuities,    Loss    from,    in    early 

death 72 

Annuities,    Reverse    of    life-insur- 
ance         72 

Annuities    remunerative    in    event 

of  long  life 72 

Annuity,   what  it  is 72 

Answers  in  application 243 

Appreciation    233 

Armstrong     Committee,     Appoint- 
ment, July  20,   1905 23 

Armstrong  Committee,  chairman's 

introductory  remarks    25 

Armstrong     Committee,     Composi- 
tion of 24 

Armstrong     Committee,     date     of 

organization    24 

Armstrong    Committee,    dates    of 

public  hearings 24 

Armstrong      Committee,     Expense 

provision  of 24 

Armstrong    Committee,    Misunder- 
standings of  26 

Armstrong    Committee,    Personnel 

of 24 

Armstrong    Committee,    Power   to 

enforce  attendance  at 24 

Armstrong    Committee,     Purposes 

of  18-30 

Armstrong  Committee,   Resolution 

of  appointment 23 

Armstrong,  William  W 24,  25 

Army  officers  and  the  war  hazard.   112 
Assessment  companies,   Laws  pro- 
hibiting formation  of 98 

"  Assessmentism  "    and    "  Frater- 
nalism,"    Lack    of    magic    in 

words   96 

Assessmentism,  Dwindling  of 89 

Assessmentism,  Failure  of 98 

Assessmentism,     Fraternal     analo- 
gies to   89 


257 


258 


The  Romance  of  Life  Insurance. 


Assessmentism,  history  of  disap- 
pointment    88 

Assessmentism,  How,  advantages 

its  promoters  88 

Assessmentism,  Inevitable  adjust- 
ments of 88 

Assessmentism,  Injustice  and  de- 
ception of  89 

Assessmentism,   Iowa  prohibiting..     89 

Assessmentism,  State  insurance 

commissioners  in  1906  upon..  95 

Assessmentism,  Unfair  arguments 

of 87 

Assessment,  Old-line  and  frater- 
nal subdivision 85 

Assessment  promoters,  Dishonest 

and  deluded  honest 89 

Assessment  safety  clause 87 

Asset  account  of  December  31, 

1907  185 

Asset,  Personal  eligibility  for  life- 
insurance  242 

Assets  of  companies  ten  years 

from  writing 183 

Assets  of  to-day 183 

Assumed  interest  rates,  Necessity 

for  realizing 190 

Assistant  superintendent,  Indus- 
trial    225 

Association  work.  Charles  Jerome 

Edwards  on 246 

Author's  proposition  for  direct 

taxation  176 

"  Automatic  "  extended  insurance, 

how  operating 73 

"  Automatic  "  features 73 

Automatic  paid-up  insurance 74 

Availability,  Taxation  undoing  of 

life-insurance 170 

Averaging  industrial  claims 230 

B 

Banker's  will,  Tribute  to  insur- 
ance investments  in 202 

Banker,  tactful  agency  canvass  of.  233 
Banking  opinion  on  interest  rates.    191 

Bank  interest  rates 191 

Basic  insurance  contract 68 

Basic  interest  assumptions,  Con- 
servatism in  192 

Beginning  of  business,  Unsavory.     44 
Beginning  of  industrial  insurance 

in  America   211 

Beginning  of  industrial  insurance 

in  England  208 

Bell,  Chas.  W 134 

Beneficiaries,  Advertising  for 74 

Beneficiaries,     Carelessness    costly 

to 74 

Beneficiaries,   Money  belonging  to 

unknown    74 

Beneficiary's  needs,  Fitting  the. ..      77 
Better    census-taking  —  Work    of 
S.  N.  D.  North  for 113 


PAGE 

Bigness,  Examples  of 19 

Billings,  Tosh 20,  241,  242 

Bishop  of  Fond  du  Lac  in  defense 

of  child  insurance 220 

Black,  Ex-Governor 26 

Board  contracts 253 

Bobby  Burns'  lament,  Criterion  of     82 

Bond  and  mortgage  loans 187 

Bond    holdings,    Removing,    from 

market  fluctuations 200 

Bonds   owned    by    the    companies, 

Character  of 188 

Bonds,  Rules  for  judging 189 

Borrowing  on  life  insurance 75 

Brandeis,  Louis  D 214,  223,  224 

Breckenridge,   Ralph  W 168,   173 

Bribery,   Snort-sighted  system  of.    140 

Bristol,  John  I.  D 253 

Bristol,  John   I.   D.,  on  agent  and 

his  work 253 

British  income  tax 169 

British  peers,  ages  at  death 104 

British  postoflfice  life  insurance 
after  forty-five  years  of  oper- 
ation    210 

Brotherhood  idea,  Force  of  the.  . .     97 

Brotherhood,  Spirit  of 204 

Brown    Book    of    Life    Insurance 

Economics 197 

Bryan's   monopoly-limitation   plan, 

Governor  Hughes  criticizing..    145 

Bryan,  William  J 145 

Building  and  loan  investors,  Cov- 
ering    82 

Burial  clubs  and  guilds,  Unsatis- 
factory condition  of 207 

Burns,   Robert   62,  65,  82 

Burns',   Robert,  quotation 62 

Burns,   Robert,  pathetic  death  of.     62 

Business  insurance   18 

Business  insurance,  separate  poli- 
cies    81 

Business  partners,  Needs  of 81 

Business   man,   The   life-insurance 

agent  as  a 250 

Business  needs  for  temporary  in- 
surance    72 

Business  not  a  philanthropy,  A. .     44 


Campaign  contributions 14,  140 

Campaign    contributions,    Relative 

insignificance  of 42 

Can  life  insurance  be  sold  without 

agents? 239 

Canadian   government   actuary   in- 
vestigating Foresters 92 

Canadian   Parliament  on  fraternal 
societies,     Royal     Commission 

of    91 

Carrying  the  message 233 

Cash    balances    196 

Cash  loans  and  surrender  features 

as  effecting  investment  policy  195 


Index. 


259 


PAGE 

Cash  surrender,  substituting  loan 

service  for  .................      7$ 

Cash  surrender  values  ...........     75 

Cash  surrender  values,  Introduc- 

tion of   ....................      55 

Cash  surrender  values,  Misuse  of.  75 
Cash  surrender  values,  Retraction 

of  .........................     55 

Cash  values  as  automatic  feature.  75 
Cause  of  individual,  home  and 

nation  .....................   256 

Causes  of  death,  Gompertz  classi- 

fication  ....................   108 

Census  reports  .................   104 

Central  bureau,  Absence  of  .......    123 

Centralizing  insurance  supervision 

under    model    department    at 

Washington,  D.  C  ...........    130 

Centralization  and  uniformity  in 

supervision  .................    134 

Class  mortality,  Census  figures  on  113 
Changed  conditions,  reconsidering 

on   ........................     78 

Changes  of  150  years  ............     61 

Charging  the  tax  to  policyholder.  177 
Child  insurance.  Bishop  of  Fond 

du  Lac  in  defense  of  ........   220 

Child  insurance,  Colorado's  prohi- 

bition   .....................    221 

Child  insurance  in  the  legisla- 

tures,    Combating    prejudices 

against    ....................  220 

Child-insurance  opposition,  Mis- 

understanding type  .........   218 

Children,  Insurance  of  ...........   217 

Children,   Mortality  of  ...........   217 

Claims,  Daily  aggregate  industrial  230 
Claim-settlement  options  mathe- 

matical equivalents   .........     77 

Class  and  mass,  Conflict  of  ......   204 

Classes  served  by  industrial  in- 

surance ....................   213 


Clergymen,  Mortality  of  .........    113 

Cleveland,  Grover   ...20,  39,  199, 

200,  215 


Cleveland    Press   in    forcible    epi- 

tome of  agent's  message  ......  234 

Collateral  loans  ................   194 

Collecting  taxes  from  other  States  167 
College  of  Valley  Field,  Endow- 

ing ........................     81 

Comments,  Henry  Morse  Stephens  255 
Commerce,  Life  insurance  not  ----    132 

Commercial  Cable  Company  insur- 

ing employees  ..............     80 

Commercial  Cable  Company's  poli- 

cies, operation  of  ............     80 

Commercial  dealings  with  human 

life    .......................   118 

Committee  of  Fifteen,  Legislation 

recommended  by  ............    138 

Communism  and  Socialism,  Anal- 

ogy to  .....................      15 


PAGE 

Comparison  of  London  Life  Asso- 
ciation and  Equitable  of  Lon- 
don with  a  New  York  city 

general  agency 240 

Compelling  local  investments,  Vi- 
cious principles  in 198 

Competition,   Effect  of 59 

Competition,  Policy  product  of . . .      58 

Competition,  Where  beyond 67 

Completed  investment  from  incep- 
tion    67 

Compulsory  insurance,  German ...      15 
Compulsory     investments,     Grover 

Cleveland  on 199,  200 

Conditions  operating  against  taxa- 
tion uniformity  and  taxation 

reduction    180 

Confidential,  Character  of  applica- 
tion    243 

Conflicting  supervisions 127 

Congress  adverse  to  achieve  direct 

Federal  control 9 

Connecticut  tax  on  assets  of  home 

company 165 

Continuous  instalments 58,     77 

Contract,  Complicated  character  of     54 
Controlling    alliance    with    subsid- 
iary corporations 193 

Controlling  publicity    142 

Convention  Governors,  Attorneys- 
general,  Insurance  Commis- 
sioners, Chicago,  February, 

1906    13 

Convertibility      as      concentrated 

power 183 

Convertible  investments 188 

Convincing     man      who      "  Don't 

Want  Insurance  " 235 

Coolies,  Wholesale  insurance  of . . .     52 
Corporation      case      with      annual 

premium  $76,722.70 80 

Cost     in     different     communities, 

Equalizing  the   177 

Cost,   limits   within   which   can   be 

reduced 222 

Cost    of    election    in    the    N.    W. 

Mutual  under  new  laws 152 

Cost,  One  thing  the  public  gets  at     36 

Cost,   Returning  excess 86 

Costs,  Efforts  to  reduce 222 

Cox,  Robert  Lynn 24 

Criticism  of  Wisconsin  legislation.   149 
Criticism  in  panic  contrasted  with 

lenient  treatment  of  banks. . .     42 

Crude  industrial  organizations 207 

Curtailing   real-estate    investment.    187 
Curtailment,  Loss  from 237 


Dawson,  Miles  M 24 

Death  a  mathematical  certainty 
within  the  limits  of  the  mor- 
tality table in 


260 


The  Romance  of  Life  Insurance. 


PAGE 

Death  rate  of  negroes  and  whites 

in  registration  area 114 

Death  rates  per  1,000  for  twenty- 
one  Civil  War  battles 112 

"  Debit,"  Collection  of  the  indus- 
trial   221 

DeBoer,  President 1 56 

Debt     to     life     insurance,     Penn. 

Supt.  of  Public  Instruction  on  256 
Deceptive    impressions    from   vital 

statistics 99 

Deferred-dividend  abuses 35,  147 

Deferred-dividend      practices      in 
Mutual  Life,  New  York  Life, 

N.  W.  Mutual 35 

Deferred-dividend  principle,  Copy- 
ing         35 

Deferred      dividends,      Companies 

not  using 35 

Deferred  dividends,   Early  opposi- 
tion to   34 

DeMoivre 106,   107,   108 

DeMoivre's   mortality    hypothesis.    107 
Departments,   Service  rendered  to 

policyholders  by 122 

Developing    patrons    for    ordinary 

insurance  from  industrial 214 

Devotion  of  industrial  classes 221 

Dexter,  George  T 248 

"  Die-to-WinY'  objection    69 

Direct  appeal  to  policyholders 141 

Direct  application,  unusual 241 

Direct  canvass,  Necessity  for 235 

Direct   Federal   control   barred  by 

Supreme  Court 131 

Direct  taxation   177,  180 

Direct  taxation,    Concerted   action 

for 178 

Direct  taxation,  How  to  achieve..    176 
Direct   taxation   plan,   Advantages 

of 179 

Direct  taxation  plan,  Objection  to.   179 
Direct  taxation,  possible  legislative 

view    178 

Disintegrating  agency   forces 142 

Dispenser   of   life-insurance   infor- 
mation, Agent  as 236 

Distribution  by  ages,  industrial  in- 
surance     219 

Distributor  of  wealth,  not  accum- 
ulator        67 

"  Dividend  "  a  misnomer 36 

Dividends,     Anecdote     illustrating 

incidental  character  of 36 

Dividends,  Incidental  character  of     35 
Dividends,  in  payment  of  new  in- 
surance        78 

Dividends  payable  in  cash  or  paid- 
up  additions  to  the  contract..      78 
Dividends,  Purchasing  power  of..      79 
Dividends,    subordinated    to    pro- 
tective features 35 

Dividend,  Using  the. 78 


PAGE 
Do  married  men  live  longer  than 

single  men? 100 

Drake,  Thomas  E 128,  163 

Dryden,  John  F 210,  211,  212 

Dunham,  President  Sylvester  C...    150 
Duties    grim    and    obligations    irk- 
some      234 

Duty   to    listen   to   insurance   mes- 

_      sage 235 

Duty  to  pass  on  solvency 122 


Earliest      insurance      indefensible 

gambling 47 

Early-day  calculations,  Errors  in.     49 
Early  days,  Uncertain  scope  of . . .      52 

Early  hazards,   Elimination  of 58 

Early  restrictions 53 

Economic  loss  from  curtailment  of 

agents'  activities 237 

Economic  features 20 

Economizing     on     life     insurance, 

Foolhardiness  of 82 

Economy   in   wages,   industrial  in- 

surance 214 

Economy  that  does  not  economize.  241 

Edwards,  Charles  Jerome 246 

Edwards,    Charles    Jerome,    Com- 
ments of 246 

Efficient    departments    and    insur- 
ance commissioners 124 

Efforts  toward  centralizing...        .    127 

Elder  Hyde,  The 33 

Election  legislation   152 

Eligibility  for  life  insurance,  per- 
sonal asset 242 

Employees,  Dividing  cost  between 

company  and 80 

Employees,    United    Cigar    Stores 

Company,  insurance  on 81 

Endowment     element,     separating 

for  savings-bank  investments.  71 
Endowment  insurance,  Appeal  of.  71 
Endowment  insurance,  Definition 

of 69 

Endowment   policy,    How    compel- 
ling and  systematizing  savings     71 
Endowment  policies,  Purposes  of.     69 
Endowment  policy,  Popular  forms 

of 69 

Endowment     Rank,     Knights     of 

Pythias 95 

Endowment     Rank,     Knights     of 
Pythias,   Mortality  experience 

of 95 

Enforced  deposits,  Taxing 199 

English   government   postoffice   in- 
surance department  and  child 

insurance   218 

English  postoffice  savings  system.   209 
English    Prudential,    Early    opera- 
tions of   208 

English       Prudential,       Enormous 

strides  of 209 


Index. 


261 


PAGE 

English  publicity  as  substitute  for 

detailed  legislation 155 

Enlightened  taxation,  Principles  of  162 
Equal  decrements  of  human  life, 

Law  of 107 

Equalizer,  Life  insurance  as  an. . .  36 
Equating  the  old-line  premium...  86 
Equitable  board,  Disruption  of 

and  termination  of  the  trouble     39 
Equitable    board,    High    financiers 

in 38 

Equitable  Life,  Beginnings  of....      33 

Equitable,  London 49,  50,  240 

Equitable    stock    purchase,     Ryan 

upon   39 

Equitable  stock,  Trusteeing 39 

Equitable    stock    trustees,    Person- 
nel of  the 39 

Equitable  vs.  Mutual   Life 33 

Equivalent  risk  in  peaceful  life  to 

war  engagements 112 

Essential     difference    between    as- 
sessmentism   and   old-line   life 

insurance   86 

Evils  and  abuses 30 

Evolution,   life-insurance   agent...   245 

Exaggerate,  Agents  who 245 

Exaggeration,  Life  insurance  needs 

no    246 

Examining      large      life-insurance 

companies    126 

Excessive   supervision,    Folk  illus- 
trating        121 

Expansion,   Geographical   53 

Expansion  of  life  insurance 65 

"Expectation   of  life" no 

"  Expectation  of  life  "  at  different 

ages iii 

"  Expectation  of  life,"    Misunder- 
standings regarding in 

"  Expectation    of    life/*    what    it 

does  not  mean in 

Expenses,  Industrial 222 

Expert,  Agent  as 236 

Experts'      counsel      for     scientific 

legislation    149 

Expounder    of   the   contract,    The 

agent  as 247 

Extended  insurance 55 

Extended    insurance,    Abusing    or 

misusing  of 74 

Extended-insurance    clauses,    Sav- 
ing premiums  under 73 

Extended  insurance,  Definition  of.  73 
Extended  insurance,  Experiments 

with    56 

Extended-insurance  provisions  ...      73 
Extended  insurance   upon  applica- 
tion         74 

Extended  insurance,  Use  of 73 

Extra  assessments,  Foresters'  rea- 
sons for 93 


Extra  premiums 53,  112,     115 

Extravagances,       Elimination      of 

former-day 239 

F 

Fackler,  David  Parks 59 

Fackler,  Actuary  David  Parks,  as 

an  insurance  prophet 59 

Family  history    117 

Family  insurance 218 

Farm-loan  mortgage  limitations...    188 
Farm  loans  and  farm-loan  organi- 
zations        187 

Federal  control 134 

Federal  control,   Arthur   I.    Vorys 

in  support  of. 134 

Federal  control,   Fears  for 133 

Federal  control,  Lack  of 121 

Federal  control,  why  long  delayed  133 

Federal  Courts,  Litigating  in 123 

Federal   direct  taxation 170 

Fictitious     asset     gains,     reaction 

1908  values 201 

Figures  from  "American  Lawyer"  164 
Figures,    investment    of    a   decade 

ago 183 

Files    and    information    insurance 

departments,  Value  of 122 

Financial  power 20 

Fire-insurance      values      covered, 

Comparison  with   66 

First     company     chartered,     New 

England  Mutual 51 

First    company    to    begin    general 

life-insurance  operations    51 

First  industrial  company 210 

First   Massachusetts  nonforfeiture 

law    54 

First  nonforfeiture  clause 55 

Fiske,   Haley   215,  216 

Fleming,  Matthew  C 24 

Fluctuations,  Analysis   191 

Folk,_  Hon.  Reau  E 127,   134 

Foreign  State  legislation  affecting 

other  States 150 

Foreign  States,  Company  standing 

in 150 

Foresters,   Independent  Order  of.     91 

Foresters,   Investigation  of 92 

Forfeiture,  Absolute  53 

Forfeiture,     Mitigating    harshness 

of  absolute 54 

Fraternal  insurance,  Outstanding.     91 
Fraternal,  old-line  and  assessment 

subdivision 85 

Fraternalism    and    assessmentism, 

Difference  between 90 

Fraternal,  Masking  in  guise  of. . .     97 
Fraternalism    adopting    assessment 

fallacies 91 

Fraternalism  in  the  balance 99 

Fraternalism,  Misrepresentations  of     91 
Fraternal  orders,  stipulated  assess- 
ment basis 90 


262 


The  Romance  of  Life  Insurance. 


PAGE 

Fraternals  in  name  only 97 

Fraternals,  Political  power  of. ...  96 
Fraternals,  practically  without  su- 
pervision    99 

"  Fraternals  "  that  are  really  Fra- 
ternal      97 

Freedom     of     investment,     where 

necessary  to  solvency 190 

French  Ball  of  January  31,  1905.  38 

French  mathematician,  Laplace...  no 

Funds  taxed  as  invested 171 

Funeral     benefit     associations, 

Friendly  societies'   90 


Gage,  Betsy 72 

Gage,  Betsy,  The  Annuity  case  of     72 

Galveston  hurricane    229 

Gambling  Act  of  George  the  Third     49 
Gambling    element    in    life    insur- 
ance, Retroversion  of 60 

Gaston,  George  H 236 

Gaston,    George    H.,    on    lack    of 

sympathy  for  agent, 236 

General  policy  conditions. 76 

General  population  statistics 104 

General  property-tax  system. .....    172 

Generalship,  quality  of,  in  life  in- 
surance    16 

Germany  prohibiting  stocks 193 

Gilding  the  lily,  exaggeration 245 

"  Give   up   one's    life,      Analyzing 

expression    95 

Gladstone,  Chancellor  of  excheq- 
uer, advocating  government 

industrial  insurance 208 

Gladstone.  Mr.,  "The  Grand  Old 

Man   ' 125,  208,  209 

Gladstone,  the  "  Grand  Old  Man," 
in  opposition  to  industrial  in- 
surance  208 

Gladstone's  opposition  to  indus- 
trial insurance,  latter-day  par- 
allels    223 

Gompertz,  Benjamin   108 

Gompertz's  classification  of  causes 

of  death 108 

Gompertz's      formula,      Important 

omission  in 108 

Gompertz's  law  of   mortality 108 

Good  prospects,  Who  are 245 

Gospel  preached  from  pulpit,  desk 

platform 250 

Government  bonds    164 

Government  insurance,  Australian     15 

Grace  and  reinstatement 73 

Grace  periods 73 

Graded  applicants  243 

Graduating  mortality,  mathemat- 
ical laws 109 

Graft  in  assessment!  sm 88 

Grant,  Actuary 92 

Gratitude  due  agent 241 


PAGE 

Gratuitous     dividends,     industrial 

companies    216 

Great  Britain's  publicity  against 
American  statutory  restric- 
tions    155 

Green,  Col.  Jacob 56,     57 

Green,  Col.  Jacob,  Ideas  of 56 

Gross  earnings  in  real  estate 186 

Guilds,  burial  clubs  and  friendly 
societies  of  early  days  in  Eng- 
land    207 

H 

Habitat 104 

Hamilton,   Andrew   139 

"  Hands  off  "  sign  to  supervisors.      87 

Harriman,  E.  H 38 

Hawes,   Major  C.  W 93 

Health,  Life-insurance  require- 
ment of  242 

High  finance  and  frivolity 37 

High  finance  and  high  pressure  in 

self-eliminating   combat    38 

High    finance    and    high    pressure 

result-getting,  Elimination  of.  40 
High  finance  in  life  insurance...  37 
High  financiers  in  life  insurance, 

No  room  for 185 

Higher  premiums  caused  by  taxes.    159 
Home   office,    Using,    for   informa- 
tion        82 

"  Horrible  example,"  Life  insur- 
ance as 140 

Hughes,  Charles  £....24,  30,  32, 

41,  137,   144,  201,  238 
Hughes ,  Governor,  Explanation  of 

veto 238 

Human  life,  Statistical  study  of. .    100 

Hunter,  Arthur   109 

Hunter's      graduation,      American 

Experience  Table 109 

Human  life,   Mistaken   deductions 

concerning 100 

Hyde,  Deferred-divided  arguments 

of 34 

Hyde,  Henry  B. 33,  34,  35,  37,  39 

Hyde     in     friction     with     brother 

officials 37 

Hyde,   James  Hazen 37,  38,     39 

Hyde,    James    H.,    and    associate 

syndicates    30 

Hyde,  owner  of  Equitable 37 

Hyde's  industry  and  success 33 

Hyde,   Successors  of. . 37 

Hypothetical   example,    illustrating 

taxing  inequities   178 


Ignorance,  Life-insurance   14 

Ignorance,  In  excuse  for 52 

Incompetent    or    dishonest    super- 
visors,   opportunity    to    retard 

business   124 

Incontestable  clauses,   Effect  of . .  58 


Index 


263 


PAGE 

Incontestable-from-date  policy....     57 

Incontestable  insurance   ....... 57 

Increased     mortgage      obligations, 

Farmers  with   82 

Increased     taxes     and     increased 

nonuniformity     175 

Increases  for  new  obligations....     81 

Increases  in  longevity 114 

Increasing  hazard,  Level  rate  for.     86 
Independent  Order  of  Foresters.  .     91 
Indirect    taxation    of    the    policy- 
holder  148 

Indirect  tax,  who  it  finally  reaches 

in  life  insurance 170 

Individual  amounts 184 

Individual,   How   industrial   insur- 
ance serves 213 

Individual  lifetime,  Uncertainty  of  104 

Industrial  agent 221 

Industrial  agent,  Need  of 209 

Industrial,     amount    in     force     in 

1880    185 

Industrial  business  in  1879 211 

Industrial  classes,  Mortality  of. . .    190 
Industrial   companies'    daily   claim 

aggregates   230 

Industrial  corporation,   Bonds  of.    189 
Industrial   critics  of  the  Louis  D. 

Brandeis  school   188 

Industrial  insurance  cause  of  com- 
mon humanity 230 

Industrial    insurance     confessedly 

short  of  ideal 229 

Industrial-insurance    cost,   Analyz- 
ing    214 

Industrial  insurance,   Early  incep- 
tion of 207 

Industrial  insurance,  Family  char- 
acter of   218 

Industrial  insurance,   gains  in  the 

decade  ending  in  1 890 211 

Industrial    insurance    in    America, 

Introduction  of   210 

Industrial  insurance  in   1909,   Size 

of    211 

Industrial    insurance    not    covered 

by  other  institution «. . . .   229 

Industrial    insurance,    Popular   de- 
scription of 207 

Industrial    insurance,    reasons    for 

larger  cost 216 

Industrial   lapse    succeeding  issue, 

Percentage  of 202 

Industrial       mortality,       Improve- 
ments in 216 

Industrial  policies  and  population.    224 
Industrial    progress    from    1890    to 

1900    211 

Industrial    system,    Inherent    rea- 
sons for  increased  cost  in....    190 
Inequities     between     older     and 

younger  members 76 

Injustice  of  tax,  Thomas  E.  Drake 

on  163 


Inquisitorial  powers  of  superin- 
tendent of  insurance 24 

Instalment  options,  Hints  govern- 
ing use  of 77 

Instalment  payment,  Interest  al- 
lowance in 77 

Insurance  abuses,  Legislative  cure 

of -.  137 

Insurance  commissioners  against 

premium  taxation 174 

Insurance  Commissioners'  National 
Convention  as  effort  toward 
unity 126 

Insurance  department  service  sub- 
stitute for  private  attorneys..  122 

Insurance   gambling,    Climax   of . .     47 

Insurance  gambling  one  hundred 

and  fifty  years  ago 47 

Insurance  moneys,  Immediate  in- 
vestment of 196 

Insurance  moneys,  State  laws  re- 
stricting investment  of 185 

Insurance  officials  on  taxation 

question  175 

Insurance  service  from  both  post- 
office  department  and  incor- 
porated companies 223 

Insurance  taxation,  Ralph  W. 

Breckenridge  on 168 

Insurance  taxes,  Ease  of  collect- 
ing    169 

Insurance  vs.  general  population 

mortality  105 

Insuring  employees,  Commercial 

Cable  Co 80 

Insuring  women,   Conditions  for..    115 

Interest  assumptions,  Overcon- 

servatism  in  168 

Interest  assumption  in  premium..    190 

Interest  earners,  Top-notch 164 

Interest  rate  increase  in  the  last 

decade  168 

Interest  rates,  Fluctuations  of....    191 

Intermediate  departments    214 

Interpreters  of  life  insurance,  In- 
surance departments  as 103 

Interstate  legislative  situation,  Syl- 
vester C.  Dunham  upon 150 

Integrity  of  policy-loan  features. .    172 

Intolerant  prospect  and  an  agent 

with  a  sense  of  humor 251 

Investigation  as  epoch-marker. ...     43 

Investigation,  attitude  of  press...     20 

Investigation,   Conclusions  from.  .     42 

Investigation,  Governor  '  Hughes 

on  24 

Investigation,  Making  political 

and  journalistic  capital  of. . .  32 

Investigation,  Men  who  "  knew  " 

in  the 23 

Investigation,  Purpose   of 24 

Investigation,  Weathering  icono- 
clastic    42 

Investment  legislation,  Welcome..    184 


264 


The  Romance  of  Life  Insurance. 


PAGE 

Investments  as  permanent  hold- 
ings    200 

Investments,  difference  between 

insurance  and  banking 166 

Iroquois  fire 229 

Irresponsible  policy  propositions..   252 


John  Hancock  Mutual  Life  Insur- 
ance   Company    211,  217 

Johnson,  William  C 41,  237,  238 

Johnson,    Wm.     C.,    comment    on 

certain  laws 41 

Joint  examinations    126 

Joint  life  policies 81 

Joint  life  policies  beyond  business 

insurance,  Field  of 81 

Joint  life  policies,  business  insur- 
ance       81 

Joseph,  Biblical  episode  of 44 

Josh  Billings'  quotation 29 

K 

Keen  rivalry,  Effects  of 40 

"  Keep  out  life-insurance  agents  " 

type  of  folly 235 

Keep     your     reserve     in     your 

pocket  "  fallacy  86 

Kelsey,  Otto 138 

Kentucky,  Insurance  in 14 

Kingsley,  Darwin  P 145 

Knights    of    Pythias,    Endowment 

Rank 95 

Knowledge,    Insurance    agent   dis- 
penser of 82 

Knowledge,  Obligation  of 16 

Knowledge,  Policy- form 73 

L 

Labor     Commissioner     of     Massa- 
chusetts   in     1872    advocating 

industrial-life  insurance 210 

Lack  of  direct  applications  in  the 

United  States 241 

Laplace,  French  mathematician..  . .  no 
Lapse,  Charging  the  agent  with 

the 228 

Lapses,  Industrial-insurance 226 

Lapses  in  the  Foresters,  Effect  of.     92 
Lapse     waste,     Amusing      Massa- 
chusetts case  of 227 

Lapse  waste,  Estimates  of 226 

Lapse  waste,  Reducing  the 226 

Lapsing  folly  in  financial  stress...  82 
Lapsing,  Precautions  to  reduce...  228 
Large  commissions  and  advances, 

Economic  features  of 40 

"Last  man,"  Caring  for  the 98 

Laws  for  all  abuses 146 

Legislating    as    part    of    a    Union, 

State  obligations    156 

Legislating  management  details...  156 
Legislation,  American  corrective.. 


PAGE 

Legislation    compelling    local    in- 
vestments      197 

Legislation,   Criticisms  of 17 

Legislation,  Effects  of,  upon  home 

and  State J7 

Legislation,   Fackler  on 59 

Legislation,  Life-insurance    17 

Legislation,  President  De  Boer  on  156 
Legislation  reducing  agency  ranks  146 
Legislation,    Successful    life-insur- 
ance     156 

Legislation,    Where,    exceeds    use- 
fulness       142 

Legislative  blunders,  Wisconsin..  17 
Legislative  committee,  Plenary 

powers  of 24 

Legislative    ethics,    Higher    stand- 
ards of 140 

Legislative     limitations     on     new 

business 145 

Legitimate   insurance    on    lives   of 

kings 48 

License,   Canceling   122 

Liens,   decreasing  for  substandard 

risks    1 16 

Liens  for  extra  hazardous  risks..  116 
Life  insurance  borrowed  from 

England 155 

Life  insurance,  Functions  of 18 

Life-insurance      investments      vs. 

banking  investments 190 

Life-insurance  money,  Power  of. .  183 
Life-insurance  legislation  needs...  203 
Life-insurance  legislation,  rising 

above  State  lines 151 

Life-insurance    opportunity,    Shut 

ting  door  to 235 

Life-insurance     Presidents'     Asso- 

ciation 175 

.Lite-insurance  rejections 117 

Life-insurance   supervision,   Neces- 
sity for 122 

Life  insurance,  when  obtainable.  .     65 
Life  Underwriters'  National  Asso- 
ciation     254 

Limitations,    amounts   on   lives   of 

children 218 

Limitations  of  democracy  in  elec- 
tions      153 

Limitations   of   Section   97,    Presi- 
dent Kingsley  commenting  on   145 
Limitations    within    which    super- 
vision is  necessary 122 

Limited-payment   contract,    Strong 

points  of   70 

Limited-payment    life    policy,    De- 
scription of 56 

Limited-payment  and  ordinary  life 

policy,  Distinction  between. . .     68 
Limited-payment  policy,    The   ten, 

fifteen  or   twenty-year 68 

Liquor  tax,  Paralleling  the 163 

"  Little     goes "     and     "  insurance 


wagers 


47 


Index. 


265 


Lloyd,  Edward 47 

Lloyd's    and    the    seventeenth-cen- 
tury taverns   44 

Lloyd's  of  to-day 48 

Lloyd's,   London  . . 47,     48 

Lobbies,  Unmoral  insurance 140 

Local  investments 187 

Loaners,  Life-insurance  companies 

as 76 

Loan  provision  an  anchor  to  wind- 
ward         76 

Loans  vs.  cash-surrender  values.  .  75 
London  Equitable,  Formation  of .  .  49 
London  Chronicle,  Excerpt  from.  49 

London  Life  Association 240 

London  Prudential,  Success  of ...  210 
Longevity,  Relative,  of  the  sexes.  114 
Loss  in  business  of  the  Ne'v 

York  companies 138 

Loss    to    company    on    individual 

lapses   226 

Lunger,  John  B 239 

Lunger,  John  B.,  voicing  necessi- 
ties of  agents 240 

M 

McCall,  John  A 30,  31,  191 

McCall,  Frankness  of 30 

McCall  on  the  witness  stand 30 

McCall,  Tribute  to 31 

McCurdy,  Richard  A 31 

McCurdy,  The  younger 31 

McCurdys  on  the  stand 31 

McKeen,  James 24,  25 

McKeown,  John 24 

Makeham 109 

"  Makehamizing "     the     American 

Experience  Table 109 

Makeham  Mortality  Law 108 

Makeham's  formula,  How,  supple- 
ments Gompertz's 108 

Makers  and  breakers 19 

Management,  Ideals  in 19 

Manhattan  Life   52 

Marine   underwriting  at  Lloyd's. .  48 

Market  for  investments 198 

Market    values   of    December    31, 

1907    200 

Marketing    life-insurance    policies, 

Field  for 244 

Married  men  and  single  men,  Age 

at  death  of 103 

Married     men,     why     they     show 

superior  longevity 102 

Maryland  Life   56 

Masonic  insurance    97 

Masonic  insurance,  Grand  Master 

of  Wisconsin  apropos  of 97 

Massachusetts    law    on    real-estate 

moneys 186 

Massachusetts    nonagency    experi- 
ment    224 

Massachusetts  savings-bank  experi- 
ments   214,  '223 

Massachusetts  tax  method 174 


PAGE 
Massachusetts   tax    on   net   policy 

reserves 165 

Mathematical  mortality  laws,  Limi- 
tations of 109 

Mathematical  science  of  probabili- 
ties, Inception  of 109 

Medical  examination 242 

Men  engaged  in  sale  and  manu- 
facture of  intoxicants,  Mor- 
tality of 113 

Messages,  Two 17 

Message  to  Congress  of  President 

Roosevelt 133 

Metropolitan  Life    211,  215,  217 

Miller,  Bloomfield 56 

Miller,    Bloomfield,    as   apostle    of 

liberality 57 

Millionaires  as  heavy  insurants.  . .      79 

Million-dollar  insurance  case 18 

Minimizing    security,     Departures 

of  new  laws  in 201 

Minimum  security  for  a  maxi- 
mum, Substituting  201 

Minimum   security,   Legislating. .  .    144 
Minority  contention  for  life-insur- 
ance taxes 171 

Minstrel  story  illustrating  under- 
lying actuarial  problems  100 

Misinformation 29 

Missouri     regulating     salaries     of 

other  States 150 

Mistaken  ideas  regarding  in- 
creased longevity  of  adult 

life    114 

Misunderstandings     of     industrial 

insurance  by  the  classes 204 

Model     department    proposed    for 

Washington,  D.  C 130 

Modern  hygiene,  modern  medi- 
cine and  surgery,  Effects  of..  98 

Modern  surrender  features 68 

Modern  Woodmen 93,     94 

Modern  Woodmen  as  an  Ameri- 
can example  93 

Modern  Woodmen  blocking  prog- 
ress    94 

Modern    Woodmen,     Inside    facts 

about  the 94 

Moffatt,  David  H 39 

Monthly  schemes,  Fallacy  of 222 

Mortality  among  new  entrants.  ...     65 
Mortality    experiences,    Variations 

in 106 

Mortality,   General  idea  of   Make- 

hanVs   law  of 108 

Mortality    general    law,    Attempts 

to  find   107 

Mortality,   General  population 106 

Mortality,  industrial  risks 107 

Mortality      law,       Searching      for 

mathematical   106 

Mortality,  lower  premium  forms..    115 
Mortality,   Makeham  mathematical 

law  of 108 


266 


The  Romance  of  Life  Insurance. 


PAGE 

Mortality,  Minimum  of 105 

Mortality  of  children 217 

Mortality,  Relative   216 

Mortality  table,    Building 104 

Mortality  tables,  Fidelity  of 104 

Mortality,  Underlying  trend  of...  106 
Mortgage    loans,     Some    company 

objections  to   187 

Mortgages    and    bonds.    Increased 

investments  in   187 

Mortgages,  where  made 187 

Morton,  Paul   39 

Morton,  Paul,  introduction  in  life 

insurance 39 

Morton's  sponsors  in  life  insur- 
ance    39 

Most  probable  age  at  death 1 1 1 

Multiple  and  wasteful  State  con- 
trol, Relieving  situation  of .  . .  130 

Municipal  bonds 189 

"  Mutualizing    the    Mutuals "    by 

legislation    152 

Mutual   Life    Insurance    Company 

of  New  York 26,  27,  51 

Mutual  rates,  why  large 36 

Mystery  surrounding  business....  17 

N 

National  Fraternal  Congress  Mor- 
tality Table 95 

Nationalize  life  insurance,  Efforts 

of  President  Roosevelt  to 128 

National  premium  or  step-rate 

plan 85 

"  Nautilus  "  Insurance  Company, 

New  York  Life  as 52 

Necessity  of  insurance,  Max  O'Rell 

on  250 

Need  of  industrial  insurance 213 

Neglect,  Hazards  of 73 

Negotiable  bonds,  Armstrong  Com- 
mittee on 77 

Negro  death  rates,  Comparison  of, 

with  whites 106 

Negroes  in  general  population, 

Effect  of  106 

Nepotism  and  minor  extravagances     41 

"New-blood"    fallacy    ..  .. 87 

New  business,  Average  initial  cost 

of 226 

New  England  Mutual 45,     52 

New  York  Commercial  comment- 
ing on  governor's  veto 238 

New  York  insurance  laws,  Revi- 
sion of 23 

New  York  laws,  Early  attempts 

to  amend 41 

New  York  laws,  Strictures  on 41 


New  York  Life 34,  52,  191 

New  York  Life,  Beginning  of 51 

New  York  Life,  First  policy  of . .      52 


New     York     report     of     1908     of 

Superintendent  Kelsey 102 


PAGE 

New  York  Sun  on  the  paternal 

trend  in  America 255 

New  York  superintendent  com- 
menting on  the  business  of 
other  States 139 

Nichols,  Walter  S 10 

Nonagency  plan,  Operation  of  two 

English  companies  on 240 

Nonagency  companies,  Nonsuccess 

of  240 

Nonagency  operation  in  old  Equit- 
able, Result  of 51 

Nonforfeiture  discussion  at 
Life  Underwriters'  Conven- 
tion, 1860 55 

Nonparticipating  insurance 78 

Nonparticipating  and  participating 

insurance,  Difference  between  78 

Nonuniformity   167 

Northampton  Mortality  Table  of 

Doctor  Price 50 

North  German  Lloyd  Hoboken 

and  the  Slocum  disasters 229 

North,  S.  N.  D 113 

Northwestern  Mutual  ....35.  l66» 

167,  174,  177 

Northwestern  Mutual  paying  a 

$i,ooo-a-day  tax  to  Wisconsin  166 


O'Brien,  Morgan  J 39 

O'Brien,  Thomas  D 128 

Obtaining  largest  service 73 

Occupation,  Changes  of 76 

Occupation,  mortality 104 

Occupation,  Statistics  of 113 

Old-age  pensions,   Great  Britain..      15 

Old  Equitabk  figures 51 

Old  Equitable,   Fossilization  of...      50 

Old  Equitable,  Imitators  of 50 

Old  Equitable  of  London 240 

Old-line,  assessment  and  fraternal 

subdivision 85 

One-trip  salesman   246 

Operation    of   joint    accounts   and 
syndicates    in    the    three    big 

companies    184 

Opportunity,  Agents'  call  as 254 

Opposition     to     Federal     control, 

Reau  E.  Folk  in 134 

Ordinary    life    policy,    Description 

of    68 

Ordinary    life,     range    of    premi- 
ums       68 

O'Rell,  Max  250 

O'Rell,  Max,  on  insurance 250 

Overdone,  Life  insurance  not. ...     66 
"  Over-the-counter "      theory      of 

eliminating  the  agent 209 

Overweight  and  underweight,   Ef- 
fect of  age  on 1 16 

Overweights  and  underweights...   100 


Index. 


267 


P  PAGE 

Paid-up    additions    as    single-pre- 
mium insurance 78 

Paid-up    addition,     where    advan- 
tageous       78 

Paid-up     insurance     as     surrender 

value 74 

Paid-up  insurance,  Explanation  of     62 

Paid-up  policies,   Unclaimed 60 

Paid-up  policy  as  ultimate  claim.  .     74 
Paid-up  policy  idea,  Evolution  of.      55 

Panic  of  1907,  Effects  of 144 

Parliament     report    on    industrial 

life-insurance  needs    207 

Parsimonious  restrictions 239 

Parsimony,     Statutory,     Wm.     C. 

Johnson  on   237 

Participating  and  nonparticipating 

insurance,  Difference  between     78 

Participating  insurance 78 

Participating   insurance,    Dividend 

features  of 78 

Partnership  insurance 81 

Part-time  agent    246 

"  Party  of  the  second  part,"  The 

agent  as 236 

Pascal,  Abbe 109 

"  Pass-the-hat  "  plan 90 

Paternalistic     principles     in     new 

legislation    142 

Paternal   trend   in   America,    New 

York  Sun  on 255 

Paul  vs.   Virginia   decision 132 

Pauper  burial,  Decline  of 212 

Pauper  burials  and  pauperism 212 

Peavey  Company 18 

Peavey,  Frank  H 18 

Pelican,  The 1 1 1 

Pennsylvania's    Superintendent   of 
Public  Instruction  on  debt  to 

life  insurance   256 

Perkins,  Geo.  W. . .  • 37 

Pernicious   practices,    Life    under- 
writers purging    221 

Personality  of  agent 236 

Personnel  of  supervisors 124 

Personnel,    Life    Agencies' 246 

Pessimism,    Interest,   of  ten  years 

back    lot 

Phillips,  Willard   51 

Points   to   be   considered    in   bond 

purchases 188 

Policeman,  Longevity  of 103 

Police      power,       Collecting      tax 

under  172 

Policies  for  exceptional  case 70 

Policies    good    alike    for    poor    or 

rich 70 

Policies  warranted  in  all  respects.      35 
Policy,  Did  you  ever  read  your?.      17 
Policyholder  not  recognizing  taxa- 
tion burden 159 

Policyholder   units,    Companies    as 

aggregates  of   125 

Policy,  kind  to  take 70 


PAGE 
Policy  loan  a  policy  mortgage. ...      76 

Policy  loans   56 

Policy  loans,  Exceptional  justifica- 
tion for  76 

Policy  loans,  how  and  when  avail- 
able      194 

Policy  loans  in  1907 76,  195 

Policy  loans,  Interest  rates  on 195 

Policy  loans,  Opposition  to 56 

Policy  loans,  Purposes  of 194 

Policy  loans,  Replacing. 76 

Policy  loans  underbidding  market 

money 196 

Policy  loans  under  market  rates. .    196 
Policy  loans,  well-secured  asset...    195 

Political  difficulties   99 

Poor,  Improvident  ways  of 228 

Poor  man,  Why,  needs  insurance.     79 
Popular  errors  regarding  expecta- 
tion of  life in 

Postoffice    industrial   life-insurance 
department,    Operation    of . . . 

209,  223 
Postoffice-insurance    system,   cause 

of  nonsuccess   in   England...   210 
Premium  and  annuity  rates,  Com- 
putation of   no 

Premium  burden,   Lifting 79 

Premium  notes  and  policy  loans. .    194 
Premiums,   after  tax  deductions.  .    179 
Premiums  as  mathematical  equiv- 
alents        68 

Premiums,  Average  in  industrial.   226 

Prentice,  Ezra  P 24 

Preposterous,  Tendency  to  believe 

the     252 

Presbyterian    clergymen's    mortal- 
ity in  America  and  Scotland.    113 

Presbyterian  ministers'  fund 51 

Preserving  contract  integrity,   Re- 
serves for 72 

Price,   Dr.  Richard 50 

Probabilities,   Doctrine  of 109 

Probe,  Life-insurance 42 

Problems   of   chance,    Solving,   by 

mathematics    50 

Production,    Nonagency  company.   240 

Professional  privileges 251 

Profits     of     industrial     insurance, 

Haley   Fiske   on 215,  216 

Profits     of     industrial     insurance, 

Metropolitan  figures 216 

Prohibiting  deferred  dividends...    148 

Proportions,  Life-insurance 15 

Proportion  of  life-insurance  mon- 
eys   in    estates    that   come    to 

probate  236 

Proposition     for    Government    in- 
dustrial      insurance,       Elizur 

Wright's 209 

Protecting  the  pplicyholder,  neces- 
sity   tor  legislation 141 

Protection  tax,  life  insurance ....     67 


268 


The  Romance  of  Life  Insurance. 


PAGE 

Protective    features   subordinating 

all    67 

Proxies,  Scramble  for,  under  elec- 
tion legislation  152 

Prudential  Insurance  Company...   216 
Prudential     Insurance     Company, 

Early  operations  of 211 

Prudential  Insurance  Company  of 
America  first  industrial  com- 
pany    210 

Prudential  of  England  first  indus- 
trial company  182 

Publicity  and  competition 155 

Publicity  to  arouse  policyholders.    171 

Public  mind,   Changes  in 137 

Public  opinion  on  stock  invest- 
ments    194 

Public-utility  bonds    189 

Purchaser,    Smaller,    pays    higher 

price    215 

Purchasing,   Methods  of 16 

Purchasing  outside  of  sydicates. . .    184 


Quality   of   investment,    Effect  of 

compulsory   laws  on 198 

Quinquennial  death  rates 106 

R  * 

Race  mortality 104 

Railroad  bonds 166 

Railroad    bonds    as    local    invest- 
ments   187 

Range  of  risks  now  written 118 

Rates    198 

Rates  earned  by  life  insurance...  199 

Rates,   Mutual  life-insurance 36 

"  Rating-up  "  substandard  policies  117 
Rating-up    system,    objections    for 

American  use   117 

Reading  the  policy,  Necessity  for.  82 
Real  business  of  life  insurance...  36 
Real  estate  as  an  insurance  asset.  186 
Real-estate      investments,      Dwin- 
dling importance    162,  163 

"  Reasons     why  "      for      different 

classes 79 

Rebate     and     incidental     extrava- 
gances, Eliminating 40 

Rebate,   campaign   funds  and  high 

finance    42 

Rebate,  commercial  practice 36 

Rebater    249 

Rebates,  high-commission  compan- 
ies     36 

Rebates,   Iniquity  and  inequity  of  36 

Rebates,  Life-insurance   36 

Rebating,  Kind  of  agent 249 

Reciprocal   absurdities  in   Wiscon- 
sin    165 

Reciprocal  taxation   165 

Reciprocal  taxation,  involving  New 
York,  Indiana  and  Tennessee 

rates  165 


PAGE 

Recommending  and   passing  laws, 

Power  of  commissioners  in...    122 
Reduced     rates,     result     improve- 
ment industrial  mortality....   216 

Reducing  commissions   40 

Reform   legislation,    General   com- 
ments on  138 

Reform,  Agents  stand  for 249 

Reinstatement,  Grace  and 73 

Reinstatement  in  event  of  lapse. .      73 
Reinstatements,   Company  practice 

in 73 

Rejected  applicant,  Aggrieved  let- 
ter  from    244 

Rejected  risks,  Why,  apply  again.    117 
Rejection,    meaning    to    the    appli- 
cant     243 

Rejection,  Restraining  fear  of....    117 

Rejections    242,  244 

Rejections,  effect  on  the  agent...   243 
Relative  tax  as  compared  with  re- 
tail drug  store 164 

Relative  tax  as  compared  with  re- 
tail dry  goods  store 164 

Relative  tax  as  compared  with  re- 
tail grocer 164 

Relative    tax    as    compared    with 

wholesale  implement  house...    164 
Remarks  of  Chas.  Sumner,  in  the 

Thirty-seventh  Congress 168 

Remedial  legislation   17 

Renewing  at  attained  ages 70 

Representation     by     counsel,     Ex- 
Governor  Black  on 34 

Representation  by  counsel,  investi- 
gation hearing    25 

Representative  of  the  policyholder, 

The  agent  as 236 

Reserves  effect,   not  cause 86 

Reserves,  Lack  of  adequate 92 

Restrictive  legislation,  where   det- 
rimental      1 54 

Retail  premium,  Paying  the 229 

Retaliatory   legislation    151 

Retarding  development  with  stand- 
ard policy   143 

Retirement  from  Germany 193 

Retiring     from     Wisconsin      and 

Texas   150 

Rhodes,  Stephen  H 160 

Rich  man,  Needs  of 79 

Riordan,    Daniel   J 24 

Risks    of    peace    compared    with 

risks  of  war 112 

Rittenhouse,   E.    E 153 

Rittenhouse,  former  Commissioner 
of     Colorado,     in     legislative 

"  don'ts  "     153 

Robertson     Investment     Law     of 

Texas 148,  199 

Rogers,  James  T 24 

Roosevelt,  Theodore    128,  133 


"  Round  robin 
cials 


of  Equitable  offi- 


133 
38 


Index. 


269 


PAGE 

Route,   Industrial  agent's 221 

Royal  Arcanum    96 

Royal  Arcanum  deceptions 96 

Royal  Arcanum,  Dwindling  of 96 

Royal   Commissioner's  report 91 

Rule  for  branding  the  twister....  247 

Ruskin   i  oo 

Ryan,  Thomas  F 39 

Ryan's     purchase     of     Equitable 

stock  39 

S 

Safeguarding  funds 172 

Safety  clause,   Type  of 87 

Salaries,  Industrial-field  workers'.  225 
Salaries,     Industrial     home     office 

clerks' 225 

Salesman,  The  life-insurance  agent 

as 244 

Savings  bank,  Comparative  figures 

.of 65 

Savings-bank    investments,    Paral- 
leling life  insurance  with....  55 

Schaeffer,  Dr.  Nathan  C 256 

Science,   Ruskin's  definition  of...  100 
Science,    Supplementing,    by    arbi- 
trary judgment  in   life   insur- 
ance   119 

Scientific     legislation     enacted     as 

compromise  measures   149 

Scientific    life     insurance,     Begin- 
nings of 49 

Scrugham 135 

bcudder,  Marvin 24 

Section  97  of  the  New  York  life- 
insurance  laws  145 

Securities  legally  approved 185 

Security,  Impairment  of,  by  limit- 
ing surplus   202 

Selected  risks 105 

Self-elimination,    Matrimonial    ...  103 

Self-interestedness  of  legislators.  .  180 
Self-selected    applicant,   Josh   Bill- 

ings  on 24i 

Self-selectipn    115 

"  Servant  in  the  House  " 116 

Service,  agent  to  man  he  insures.  254 

Settlement,  Modes  of 77 

Sex 104 

Sex    classification,    industrial   mor- 
tality       115 

Side-show  lines  of  some  agents.  ..  253 

Single  payments    77 

Single-premium  policies 68 

Single-premium  policies,    Cost   of.  57 
Single-premium     insurance,     Paid- 
up  additions  as 78 

Sins  of  the  standard  policy 143 

Slocum  disaster   229 

Smaller-salaried     men,     Insurance 

for 71 

Special-scheme  agent,    Elimination 

of    253 

Standard      life      insurance      for 

healthy  alone 242 


PAGS 

Standard    policy    bad    for    policy- 
holder  1 43 

Standard-policy  law  of  New  York.   142 

Standard-policy  laws 60 

Standard  policy,  Menace  of 60 

State  comity 130 

State    commissionerships,    Political 

character  of 123,  133 

State    departments    as    organized, 

Limitations  of 123 

State      departments      as     political 

prizes    123 

State    departments    serving    insur- 
ance public   82 

State  indirect  taxation 170 

States  legislating  for  one  another.    150 
State  sovereignty  in  insurance...    122 
Statutory  parsimony  to  the  agent, 
William   C.   Johnson,  of  New 

York,  on   237 

Stephens,  Henry  Morse 255 

Stephens,   Prof.   Henry   Morse,  in 

thoughtful  comments 255 

Step  rate  or  natural  premium  plan     85 
Step-rate  plans,  Limitations  of...     86 
Stock  Exchange  bonds,  why  favor- 
ably considered 189 

Stock    investments,    Future    dwin- 
dling of 194 

Stocks  as   a  life-insurance   invest- 
ment      192 

Stock  schemes    253 

Stocks    owned    by    American    life- 
insurance  companies 194 

Stokes,  President  H.  B 160 

Strike  legislation   139 

Strike    legislation,    "  Big    Three " 

in  opposition  to 140 

Struggle  for  leadership 37 

Subsequent  legislatures  to   correct 

mistakes  138 

Subsidiary     corporations,     Control 

of,  through  stock  investments.   192 
Subsidiary   corporations,   Theoreti- 
cal advantages  of 192 

Substandard  insurance 115 

Substandard  risks,  grading  on  de- 
ferred-dividend system 117 

Substitute   for  joint  accounts  and 

syndicates    184 

Suicide    or    inebriacy,    Forfeitures 

of 54 

Sumner,  Charles   168 

Sumner's   epigram,    "  a    tax    on    a 

tax  " 168 

Sunday-school     Times    on     uncer- 
tainty of  life 61 

Superintendent,   Industrial    225 

Supervising  bureaus,  collectors  of 

revenue  and  taxation 121 

Supervision,  Multiple 122 

Supervision,  Reau  Folk  on 121 

Supervision,     too    much     for    one 

State 127 


270 


The  Romance  of  Life  Insurance. 


Surplus  laws,  Contingency 144 

Surplus.  Hunting  available 144 

Surrendering  policies,  Sacrifice  in.  75 

Surrender  values 227 

Swain,  William  C 97 

Syndicates,     joint     accounts     and 

methods  of  investment. ..  .41,  185 


Tactful  agent  interesting  a  banker  233 

Taft,  William 134 

Talmage,   Doctor    44 

Talmage's,    Doctor,   analogy 44 

Tappan,  Frederick  D 156 

Tarbell,  Gage  E 37,     3§ 

Tarbell    and   other    Equitable    offi- 
cials          37 

Tarbell     in     open     opposition     to 

Hyde    38 

Tarbell   of    Equitable    vs.    Perkins 

of  New  York  Life 37 

Taxation  cost.  Estimates  of  future  162 
Taxation  cost   to   the   policyholder 

in  the   United   States 162 

Taxation      burden,      Stephen      H. 

Rhodes  on  the 160 

Taxation,  President  Stokes,  of  the 

Manhattan  Life,  on 160 

Taxation  review 179 

Tax   burden,    Connecticut    Mutual 

figures    159 

Tax    discrimination    between    dif- 
ferent States 180 

Taxes  in  Germany    169 

Taxes  predicated   on   varying  sys- 
tems     165 

Taxes     to     citizenship     of     taxing 

State 178 

Taxing    evil,    Cure    for,    proposed 

by  insurance  commissioners..    173 
Taxing  physical  wealth  in  addition 

to  premium  taxation 172 

Taxing      reform,      Commissioners' 

resolution  for 173 

Taxing  reserves 1 74 

Taxing  the  mutual  premium 156 

Tax  out  of  dividends 176 

Tax   payments   in    various    States, 

Analysis  of 167 

Tax  question   for   nonparticipating 

insurance    161 

Tax    rates    against    luxuries    and 

necessities    162 

Tax  rates  of  different  States 167 

Tax  reform,  author's  suggestion..    180 

Tax  views,   England 169 

Taylor,  John  M 137 

Ten-payment  life  fits  in,  Where..      71 
Ten-year    Endowment    corporation 

case 80 

Ten     years'     industrial     work     in 

England   208 

Term  insurance   69 

Term  insurance  for  business  men.     72 


PAGE 

Texas  securities,  Enforced  deposit 

of    199 

Theory  and  practice  running  coun- 
ter in  subsidiary  holdings....  193 

Thorne,  Lieutenant-Governor. . .  13, 

14,  16,     20 

Thorne,   Lieutenant-Governor, 

Speech  of    13 

"  Three   systems,"   illustrating   ex- 

?ression    85 
t,  Tax  on 163 

Time  as  a  stock  in  trade 233 

Time  in  force,  Industrial  average.   226 
Toleration  practiced  by  the  agent.   251 
Tontine  idea,   Introduction  of. ...      34 
Tontine  or  deferred-dividend  prin- 
ciple, Definition  of 34 

Travel,  Conditions  governing 76 

Trial,  Life  insurance  not  on 30 

Tully,  William  J 24 

Twenty-payment    life    policy,    why 

most  popular  form 71 

Twisters,  Eliminating,  from  busi- 
ness    248 

Twisters,  "  holier  than  thou  "  type  220 

Twisters,   Rule   for  branding 247 

Twisters,        Why        policyholder 

should  avoid 247 

Twisting  agent,  Avoiding 247 

Twisting  deferred-dividend  policies.  247 

Twisting,    Definition  of 247 

Twisting,  Geo.  T.  Dexter  on 248 

U 

Uncapitalized  married  man,  Neces- 
sities of  79 

Underinsured,  Life 66 

Underwriters'  Life  Convention, 

1860  55 

Uniform  one  per  cent  gross  pre- 
mium tax 175,  180 

Uniform  rulings,  Tendency  to- 
ward, in  supervision 125 

United  Cigar  Stores  Company's 

insurance  on  employees 81 

United  States  Census  Bureau, 

Limitations  of  113 

Unknowing   forfeiture    73 

Unprofitable  experience  with  real 

estate  186 

Upheaval,  Beginning  of  the 30 

Utopian  legislation   152 


Values  covered,   estimates  of  Ed- 
ward A.  Woods 66 

Valuing  a  busy  man's  time 233 

Varying  tax  rates  influencing  cost  177 
Veto,      Governor      Hughes',      on 

agency    bill    238 

Vital  statistic  questions 114 

Voice  of  the  people,  Arousing....  18 

Vorys,  Arthur   1 134 

Voyaging,  Wholesale  insurance  of  52 


Ind 


ex. 


271 


W  PAGE 

Wage  earners.  General  principles 

for    7° 

Wages  for  life-insurance  workers, 

Indirectly   fixing    145 

Walk,  Doctor   221 

Wall  street  investments 197 

Way  to  have  life  insurance 242 

Wealth   of   the   poor,    Life    insur- 
ance as ; 184 

Weekly  agency  call,  Necessity  for  222 
Weekly-premium     plan,      why      it 

succeeds 222 

Weight  impairment 1 16 

Wemple,   William   W 24 

Westinghouse,   George    39 

West  Point  graduates  insuring...    112 
Whole-life    and    endowment    con- 
tracts, Contrasting 69 

"  Why   penalize    life    insurance?  " 
Tax     question     presented     by 

Bar  Association   173 

Widows  earning  their  own  living 

hi  America   66 

Will  case,  An  odd 19 

Winston,  Frederick  D.... .......      33 

Wisconsin  and  Texas  legislation. .    148 
Wisconsin  fixing  a  maximum  price 

of  insurance 149 

Wisconsin  laws  without  parallel..    149 


PAGE 

Wisconsin  tax  burden 166 

Wisdom  of  investment  laws 202 

Withdrawals  from  Texas  because 
of  compulsory  investment  leg- 
islation    199 

Wolfe,  Actuary  S.  H 147 

Women   as  annuitants 115 

Women  as  insurants 115 

Women,   Insurance   of 115 

Women,  Policies  for. 71 

Women,    why    not    considered    as 

favorably  as  men 114 

Woodmen,  Chief  clerk,  contend- 
ing for  reforms 94 

Wood,  George  D 80 

Woods,  Edward  A 66 

Woods'  insurance  agency 66 

Work    of    the    agent,    upbuilding 

life   insurance 236 

Wright,  Elizur 54.   132,  209 

Wright,  Elizur,  on  loss  of  nation- 
ality   132 

Wright,   Elizur,  supplying  support 

to   Gladstone   ideas 209 


"  Yellow  Dog  "  items 139 

"  Yellow  Dog,"  The 20 


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FEB     8 
JAfc  26  W34 


IN 


WAY  03  1993 


JUN  29  193S 


JUL   5  1940 


JUN     7  1948 
'v'49GE 


LD  21-2wi-l,'33  (52m) 


7993 


<£,, 


:  i 


258740 


